Humans aren’t done yet
On August 1st, View from the Peak officially branched out into a new entity. After seven years of working with IND-X Advisors in Hong Kong, it was time for a change and we now have complete control over our own destiny. Initially, clients won’t even notice the difference, but for myself and the team, it is a fresh start of sorts. We couldn’t be more excited about what the future holds.
We will be making a few changes, changes that will reflect our new motto; Humans aren’t done yet. Have you ever wondered why most investment managers and research firms are re-branding themselves to focus on data?? Ask yourself the following questions next time you meet one of these folks?
1) Do they have the fastest computers?
2) Do they have the smartest data scientists?
3) Do they have the largest budgets?
Data is an arms race that most investment management and research firms cannot win. As an investor, data should be the lion’s share of what you invest in. It should be the cornerstone of your research process, but it should not be everything you do. Maybe you should focus a little on brain power. Smart people with experience and specific expertise will complete your analysis in ways that data simply cannot. Data cannot predict policy or regulatory changes, especially in markets such as China and other parts of the emerging world where processes are less defined. Data cannot predict technology changes. Data has proven ineffectual in determining the rise of populism, the global impacts of the policies of President Trump and data will struggle with the long-term consequences of Brexit. We are years away from artificial intelligence and machine learning being able to monopolize investing. While data will play an ever-increasing role in the making of investment decisions, for longer term thematics, smart humans still hold the answers.
I am humble enough to know that a business that revolves around an experienced global strategist with a grey beard is a firm that will never be more than niche. To truly be a global research provider of scale, one that truly influences the narrative, it cannot revolve around me. The View from the Peak Expert Series is approaching its third year and with 40 think tank fellows within our network, we are at the early stages of achieving our ultimate goal:
To cover every major global theme by having access to the greatest minds in the think tank community and academia and providing it to clients in a cost-effective manner.
We will achieve this by dramatically increasing the number of Expert Series interviews and reports that we will conduct over the next twelve months. We will broaden the scope of the reports to include new technologies including the launch of a three-part series on battery technology in September.
The value add that I will provide is to make this academic work practical. Practicality has been the cornerstone of what we have done at View from the Peak over the past seven years and this will continue to be our edge. The thematic model portfolio will continue to be the score card of all the ideas that are generated, but ideas will be reinforced by the extraordinary work that our think tank network is producing on our behalf. We will turn the incredible intellectual property of think tank fellows at the Peterson Institute, CFR, AEI, CSIS, and Chatham House into actionable investment strategies.
Thanks to all of you who have shared the journey so far and will continue to in the future. Remember, Humans aren’t done yet.
One practical note, the Sunday blotter will be providing a list of the release time and interview dates for all our Expert Series reports going forward. This will enable you to send me through question for our think tank fellows.
Only one interesting thing and data couldn’t pick this up. USDRMB is not going through 7.00
The only interesting thing for me as we enter this week is the move by the PBoC to place a 20% reserve requirement on RMB FX forward transactions which makes the cost of shorting the RMB dramatically more expensive. There are several things to note here:
1) The most common debate I have had in the past two weeks is whether or not the PBoC was prepared to let the RMB trade through 7.00 verus the USD. While a closed capital account and an absence of inflation concerns means that the consequences of allowing the spot rate to rise to level not seen in over a decade are limited, the PBoC has decided; why take the risk? Ultimately, Beijing will be able to determine where the currency heads to and it now seems clear that the agenda is similar to what we saw in 2016 which is a trade weighted, gradual depreciation of the RMB. By making it more expensive to short, the PBoC has ensured that they control the process. Speculators betting on a move above 7.00 RMB to the dollar, should reassess.
2) While I am convinced that the Chinese will not cave regarding domestic industrial policy and give in into pressure from the Trump administration, I do believe that they are running out of options to retaliate against US tariffs. Pundits who talk about the ability for the Chinese to make life difficult for US companies operating in the mainland miss the point. Tariffs are a publicity stunt in many ways. As $12bn in hand-outs to US farmers testify, the economic impacts from tariffs can be offset by government involvement. Tariffs are designed to bring China to the negotiating table. They are high profile and headline grabbing. Shutting down a few Starbucks franchises due to made up violations simply doesn’t have the same impact. Sure, the banning of iPhone sales would have the same public relations consequences as tariffs but frankly, the Chinese are running out of options. This is why I believe that tariffs are here to stay, and this will be the new normal
3) An RMB with a clearly defined floor is a great thing for Chinese equities. A 5% fall in the Shanghai composite during the first week of August was a bit of an over-reaction. For those of you sitting on the fence on Chinese equities, the time to buy them structurally is post the implementation of President Trump’s additional tariffs on $200bn worth of goods, probably in late September. That should be enough for 2018 as the mid-term elections will then take center stage. That said, signs of a stable RMB will certainly buoy local confidence.
Upon the release of this report, the thematic model portfolio will buy another 5% position in Chinese equities, 2.5% in A-Shares and 2.5% in Tencent. Eventually earnings will rule the day. Dramatic multiple expansion is making Tencent attractive on numerous metrics.
The RBA and RBNZ meet his week and no change is expected. Indonesian GDP on Monday. On Wednesday, Japanese trade. Thursday, China PPI and CPI and Philippines GDP. Friday, Japanese GDP and PPI, Hong Kong GDP, and the US reports on Industrial Production.