Just when you might have thought the worst was over for the stock market, Fed Chair Jerome Powell, via Jackson Hole, threw a spanner in the works.
Indeed, it was probably the case that he gave his higher interest rates warning, because the markets have been behaving as if they can handle the prospect, and apparently that just will not do. For some reason, while were are increasingly in pain due to rising prices, central bankers on both sides of the pond believe that we are either in denial or simply complacent.
Back To The 1980s
As things stand it would appear the likes of Powell, and Andrew Bailey over here, wish to deliver us an early 1980s-style collapse, with companies going bust and genuine consumer hardship. After all, people are paying 10% plus inflation on everyday goods, why not raise mortgage rates as well to make the struggle even more painful?
It could and has been argued that inflation this time around is not demand-led, it is a supply issue. Raising rates may be the wrong remedy, over and above the way that historically attempting to control the economy via interest rates invariably results in the cure being worse than the disease: boom/bust being the result. Thankfully, post-2008, it was decided to keep rates low and not use them as a football for fiscal policy.
Out Of Sync
Unless we are to avoid potential disaster, it may be best that whatever rises we have had to date should be the last. The problem for governments is that the Bank of England and the Fed continue to give us a scenario where they can be acting totally out of sync with policy. It can be described as a situation where the right-hand does not know what the left hand is doing.
Radical Moves
In the US it is perhaps even worse than the “independent” Bank of England we have here, in that the Fed seems to be a law unto itself. It would appear that there is an urgent need for central banks to be brought into the fold of government. The current post-pandemic / Ukraine / cost of living crisis landscape suggests that radical moves need to be made, with the current 20th-century methods not fit for purpose.
Resilient Minnows
As I have suggested, before the Fed pulled the rug from under stocks on Friday, things were slowly stabilising after the early summer rout for small caps. This may be a punchy call, but it may very well be the case that even with potential economic sabotage via interest rates, we still see the minnows provide some brightness. This is, of course, especially for the companies and situations that are set to benefit from the current climate. Coincidentally, I have either met or interviewed many of the more favoured protagonists who are set to benefit. The cliché with real estate is Location, Location, Location, with small caps it is Management, Management, Management, with perhaps a little timing aspect in the mix as well.
Angus Energy / Prospex
Among the alumni at the moment are George Lucan of Angus Energy (ANGS) and Mark Routh of Prospex (PXEN). Both have proved their mettle, despite having to negotiate the pandemic slings and arrows. Indeed, both companies are sharply in focus given Putin’s gas blackmail strategy. But it can be said that despite recent share price rises the valuations here are still peacetime, not crisis/wartime.
I3 Energy
The steady pair of hands this week was provided yet again by i3 Energy (I3E), a company which had the gumption to buy oil assets low, and is now reaping the benefits of the price surge. Once again, if investors were not so generally reticent, on production forecasts and the dividend, one would expect there to be further significant upside from the present share price.
East Star Resources
One of my few physical City meetings this week, ahead of the Bank Holiday, was with East Star Resources (EST). Kazakhstan-focused explorer. Here one is reminded of the old TV Times magazine campaign, “I never knew there was so much in it!”. Apart from the ongoing tagline from the company that Kazakhstan now has the potential of Western Australia in the 1970s, the CEO Alex Walker, certainly has the experience and the contacts to get the company over the line. The fact that he has moved to the country also shows he is ready to lead from the front. The baseline market cap of just under £10m, with the shares trading at the IPO level from last year, suggests that the company’s valuation has been stress tested enough, and it is ready to move ahead.
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