The pubs are back and so are the heroic trader tales, growing by the billion every day. By now readers may have heard about a new army of day-traders investing their stay-at-home savings in financial markets. There are some pretty good tales too; the Nasdaq hitting all time highs, gold flying to record prices, Chinese stocks up 10% in 48 hours, Amazon trading over $3,000 per share and Tesla up 42% in just 5 days. Whoop whoop. Welcome to a financial world with $10 trillion of central banking largesse.
Tesla might win the trader-tastic trophy this week given it is now the most valuable car company in the world. Elon Musk’s electric vehicle franchise is currently worth almost $250 billion or, to put it in a more domestic context, that’s the gross national product(GNP) of Ireland from as recently as 2017! Tesla has lost almost one billion dollars in each of the last two years so investors are certainly taking a very long term view on cash returns from this business of making……automobiles. Or possibly not.
The vast majority of buyers of Tesla stock through the pandemic lock-down are “trading” a short term view of further upside and hoping to exit with a quick profit. Nice if you can do it, yet all retail trading website disclaimers state clearly that most don’t. The track record of longer term investors is much better and this article is focused on a particular type of buyer, the corporate strategic buyer. These guys don’t have the luxury of a quick exit . They are in for the long haul and therefore their mergers and acquisitions (M&A) activity is a better barometer of confidence in the future. Clearly, a global pandemic has hit C-suite confidence but the data suggests some cautious optimism. Here are a few data tells:
• Bloomberg tells us the first 6 months of 2020 saw global M&A activity fall by 50% to $1 trillion. But that’s still $1 trillion of long-term wagers on the future.
• The Asia-Pacific region showed remarkable resilience with just a 7% decline compared to the similar period in 2019.
• According to Crunchbase global venture funding in younger companies was $129 billion in H1. That’s also just a 7% slip from last year.
• And at last, Warren Buffett is dipping into his $137 billion cash pile at Berkshire Hathaway to buy a gas pipeline from Dominion Energy for $10 billion.
• The FT is also citing data from Refinitiv showing private equity(PE) firms upping their activity. These firms are also long-term thinkers and they accounted for 16% of all M&A activity in H1. That’s the highest share for PE since 2007 and they have another estimated $2.5 trillion to spend.
It is not all dreamy optimism. US activity has collapsed by 90% and 44 deals have been pulled. That contrasts sharply with previous periods of turmoil and possibly reflects an executive pool truly exhausted by all that Trumpy winning. We just won’t go there today… and one can only hope Florida’s school children take the same view.
But let’s finish on a more upbeat note and return to our previous theme of a possible surprise recovery for the “sick man” of financial markets, Europe. We note with interest that European deal activity has slipped by just 15% in 2020 so far. It is early days yet but, when Buffett and Europe are leading again, there are grounds for longer term optimism. Natural gas and Europe are quasi-inflationary bets so it won’t be just us watching carefully. Indeed, feel free to listen to the day trader tall tales but we can assure you the bond trader tales could be seismic….and very very real.