Gravitas Spark CrowdFunding

Author: Gary McCarthy

  • Media Sector: Call for the Dead

    Media Sector: Call for the Dead

    I think the greatest single enemy is the misuse of information, the perversion of truth in the hands of terribly skillful people. Not my words. That is a direct quote from the greatly missed John Le Carre. He should know, a former spy who went on to become the greatest espionage storyteller ever. His very first book, “Call For The Dead”, was on the cusp of being published sixty years ago and how that title seems to resonate today. The battleground is different – a viral threat has replaced hydrogen bombs in the narrative – but information is still critical to self-defense in a global public health crisis. However, there’s a big problem.

    Information socialism has arrived. Thanks to social media everyone is now a broadcaster – the ‘elitist’ barriers of licenses and legal responsibilities have been torn down. Like a 1950s Soviet collective farm, accountability and positive incentives die. Of course, this is fertile territory for bad actors wishing to manipulate the truth. Sadly, truth is not the only victim of these actions. The US is breaking records in a bad way every day in its battle with Covid-19. More than 300,000 dead and a death toll run-rate approaching 25,000 per week has been a tragic result of chronically poor information. Criminal even.

    The undermining of the US election result has been all too easy for the Trump campaign. There are now more than 50 million Americans who believe the election was rigged thanks to the malign efforts of campaign lawyers and enabling media personalities at Fox, OANN and Newsmax. The echo chamber of social media and the targeted sharing of misinformation has merely completed the trust destruction cycle. It’s frustrating and …….deadly. Who knows how many lives could have been saved if US government messaging had represented the truth? We now know truth was not the goal thanks to the staggering New York Times’ reports of White House interference in the communications of the CDC, the very institution tasked with protecting the health of US citizens in a pandemic.

    The protective benefits of social distancing, masks and reduced social contact was lost in a toxic political environment fueled by the social and traditional media all too willing to please their target audience bases. The consequences have been tragic in human terms but there is an even bigger challenge ahead. The arrival of a Covid-19 vaccine is a huge positive but the corrosive media influence on trust remains a huge threat. Providing individual broadcasting rights to conspiracy theorists and anti-vaccine campaigners could undo the benefits of a vaccine. One suspects a Biden administration will demand more responsible media behavior. Already, we are seeing some interesting moves.

    Fox News was forced to broadcast explicit 3 minute clips during various top-rated shows debunking the false accusations that Dominion vote counting machines were manipulated. Furthermore, both Google and Facebook are now facing commercial anti-trust litigation. Facebook, as we predicted a year ago, is actually fighting federal initiatives to break up the company. The fight for truth might be staging a comeback but more fundamental cultural shifts are probably required. Traditional media has strayed from its original role to provide information. Today’s traditional broadcasters compete in a consumer market where information socialism and ‘infotainment’ are inextricably linked. The following are probably the four most truth damaging trends:
    1. Broadcasters now strive to deliver messages which their customer bases expect, irrespective of accuracy.

    2. The arrival of Fox News in 1996 promised to give traditional middle America a voice. In effect, Fox successfully broadcast “the other side” to challenge mainstream media messaging.

    3. Competitive pressures forced mainstream media to provide ‘balance’ and air the other side to every issue. But not every issue merits this balancing and has resulted in rampant “false equivalence” in almost all media. Think Hilary Clinton emails ahead of the 2016 election.

    4. Finally, the disastrous evolution of “both side-ism”, “ balance” and “false equivalence” has produced an army of opportunistic broadcasting personalities who command huge air-time irrespective of their relationship with reality. Historically, broadcasters took responsibility and vetted contributors based on their qualifications, credibility and independence. That barrier to broadcast has been obliterated – welcome to information socialism.

    Who knows what will be the tragic wake up call for traditional media but one senses there will be an event and a truth commission which will leave its mark. The consequences of the Iraq war and Trumpian complicity in pandemic deaths and Russian cyber intrusion are still up for potential debate but a failed vaccination program could be the ultimate Call For The Dead.

  • ‘Tis The Season For Some Folly

    ‘Tis The Season For Some Folly

    This week has been a bit of a head wreck. Pandemic deaths in America are now at a daily 9/11 toll level but the GOP and its cult leader wants citizens to focus on delusional vote rigging conspiracies. Worse still, it seems to be working as upwards of 50 million voters don’t believe there could be 81 million of their compatriots who hold a less worshipping view of the President. This mass cognitive dissonnance is not exclusive to the US.

    Closer to home we are witnessing millions of Brexit supporters in total denial that in every multi-party trade deal ever concluded in history there existed a compromise on sovereignty. Any chance they’d check the not-so-small print in the WTO trade frameworks or even the cuddly Koala version presented as an “Australia – style” deal? No chance now to calmly point out that single (multi-party) markets and total sovereign control are utterly incompatible and devoid of any logic. Head scratching stuff but dare we suggest these flights of folly are not confined to politics. Financial markets, IPO activity in particular, are potentially veering into irrational territory.

    Let’s start with DoorDash which made its market debut on Wednesday. This seven year old company is the top food delivery app in the US so Wall Street’s analysts had initially proposed a valuation in the $30 billion region. By Wednesday night that valuation, after the first day of public trading, had rocketed closer to $70 billion. That’s pretty close to the valuation of the fifty year old global logistics giant, FedEx. Need to lie down? Try an AirBNB, or should we say try its IPO.

    Yep, AirBNB having stared global pandemic calamity in the face was anticipating an IPO debut valuation of around $50 billion yesterday. Silly analysts. Investors swooped on the shares and the stock soared to a the $100 billion valuation. Yep, the online vacation rental platform is now worth the same as Marriott, Hyatt, Expedia and Hilton combined. Or…. More than six Ryanairs and its annual 150 million passengers. These two IPOs might benefit from strong retail profiles/brands but investor euphoria is not confined to the headline grabbing monster issues.

    Consider the AI software play, C3.ai. Its IPO was expected to deliver a valuation in the $5 billion region. Try $12.5 billion! That equates to 40 years of sales….. not income. That’s a lot of growth, modelling, guessing and whatever you fancy for Christmas. AirBNB will hardly blush, trading at a sales multiple of 20x its forecasts for 2021 and DoorDash is on a 16x sales promise. Even the most demanding of Santa letters would struggle to match this innocent optimism.

    Indeed, we have written many times here that human beings are awful at forecasters but let’s just say there’s a staggering level of future forecasting and certainty in these valuations. Did Covid-19 and a global economic shutdown really just happen in the past 12 months? Clearly, the return of investor confidence is a good thing but markets are partying pretty hard right now. As we all know, Doctor Tony doesn’t approve of partying at the moment and we can even agree with Boris on this occasion – “Be jolly careful!”

  • China Syndrome: Supply Chain Reaction?

    China Syndrome: Supply Chain Reaction?

    Anyone remember the China Syndrome movie? Showing my age here but that 1979 nuclear disaster thriller starring Jane Fonda and Michael Douglas did spring to mind this week. Yes, we are currently enduring our own global pandemic disaster but it was the developing story of a potential vaccine which prompted the movie tangent and China reference. By now we are all aware of the encouraging efficacy of various vaccines in development by Pfizer, AstraZeneca, Moderna and other pharma players. However, this week we were reminded of the practical obstacles to delivering billions of delicate vaccine doses for the world’s population.

    Forget the logistics of getting the vaccine to the vulnerable. How about just making enough vaccine? Pfizer just told us that the volume of vaccine produced by year end will be half what they originally expected. The unexpected hurdle was the inability of Pfizer’s supply chain to meet the rapid scale up in demand for raw materials in the manufacturing process. This will be resolved but is a potent reminder of the critical role supply chains play in the global economy. Yes, a pandemic vaccine is a crucial story in the near term but merely reflects a sudden spike in demand. However, two other stories in recent weeks have potentially far greater impact on global supply chains in the coming years.

    First, let’s talk semi-conductors. These tiny building blocks for electric circuits are the brains of almost every smart device and data centre on the planet. Now Apple has just launched Mac laptops with new proprietary, M1, chips. We won’t bore you with the technology battles between the chip giants Intel, Samsung, AMD and ARM but, upon further industry reading, one market share number jumped right off the page. It didn’t even feature any of the companies listed earlier. Rather, it was one company and one country.

    Taiwan Semiconductor(TSMC) of the same island nation is the critical company in the supply chain for semiconductors. TSMC is known as a foundry – the manufacturer(not designer) of semiconductors in fabrication plants, or fabs, for almost every major player in the global economy. But here’s the jaw dropper; TSMC has just reached 54% global market share and will probably grow after Intel’s controversial July decision to place a monster 2021 order with TSMC. You might have read that data is the new oil. We are not so sure. The supply of semiconductors appears to be economic power in its purest form. And Taiwan is the new Middle-East. Now think about that and the last 70 years of peace and harmony in the cradle of civilization, if only.

    Then think about current US-China tensions and extreme Sino-sensitivities over Taiwan’s independence. Apple has already asked its manufacturing partner, Foxconn, to shift product assembly from China to Vietnam. The problem for Taiwan is that China leans heavily on the island’s chip manufacturing capacity too but recent Huawei limits/sanctions complicates things. China’s leaders are unlikely to tolerate increased US influence in its back yard, and the worry is that Taiwan is a political challenge to Beijing’s authority in the region.

    Ben Smith at EpsilonTheory.com puts it well – “there is no future where China can both maintain its existential interests and allow the world’s principal supplier of semiconductors to remain outside its direct political control.” Smith goes so far as to say that Taiwan is “the most important country on earth”. This is not exactly music to the ears of supply chain risk managers. What are the chances of a 2023 “chip shock” in the South China Sea fifty years after the 1973 Yom Kippur oil shock? Place your chips now.

    On a less speculative note, there is another massive structural story developing in supply chain management. ESG and sustainabilty risk compliance is gathering momentum. Nasdaq has just announced it will require all companies listed on its exchange to have at least one woman and one diversity/minority representative on company boards, or face delisting. That may feel like a relative slow-burner as Nasdaq is allowing a multi-year transition phase. Elsewhere, the drum beat of ESG, environmental and sustainability compliance grows louder with more immediate pressures.

    BMW has already publicised its efforts to pressure companies in its supply chain to demonstrate high standards of ESG compliance. Furthermore, Covid-19 has focused minds on supply chain vulnerability with a recent HSBC survey in Canada flagging that just 8% of Canadian listed companies(issuers) currently rate their suppliers on ESG.

    The sustainability/ESG revolution might not provide the shock headlines of a potential South China Sea conflict but there will be some high profile corporate casualties on this journey. Indeed, the collapse of Sir Philip Green’s Arcadia retail group this week rightly focused on the huge job losses and the spectacular riches distributed to Green’s family while Arcadia’s pension fund struggled. However, behind the headlines there lies a tale of retail failure largely fueled by strategic short-termism and a glaring miss of sustainability and ESG issues in its supply chain. Now back to China.

    China’s positioning in the global supply chain was estimated at 28% of global manufacturing output back in 2018. Given it’s the only major economy to actually grow in 2020, one can expect that share to move towards almost one third of global activity. Sadly, headlines on Hong Kong, Uighur repression and environmental pollution have also grown. The likelihood of a collision between ESG and Chinese supply chain sustainability compliance is almost inevitable but it might begin with a relatively innocuous headline. Watch carefully.

    All who watched China Syndrome knew it was a fictional “near miss” for the nuclear industry. However, just 12 days after the movie’s release there was a real-life nuclear accident at Three Mile Island, Pennsylvania. Just saying.

  • Three Huge Trends To Earn Their Stripe

    Three Huge Trends To Earn Their Stripe

    Wowzers! The latest market chatter is that Irish fintech, Stripe, is about to raise more funding which could push it towards a $100 billion valuation. Billions, both the TV show and the monetary equivalent, feels so yesterday. Just think, the giants of Irish public markets – AIB, Bank of Ireland, CRH, Kerry and Ryanair – would currently garner a combined market capitalisation of just over €50 billion. We are witnessing decades of traditional franchise building being overtaken by tech-powered businesses which are moving at hundred billion dollar warp speeds. A touch hyperbolic, you think? Well, think Tesla….

    Elon Musk, the founder of the electric vehicle manufacturer, is now richer than Bill Gates thanks to a Tesla valuation increase of more than $100 billion in the last….. 10 days. Warp speed might be the $400 billion increase achieved over the past 300 days. However, let’s try and slow things down by exploring the trends driving these huge valuation shifts. Tesla illustrates two trends rather well.

    First, investors are now heavily weighting their valuation processes towards intangible assets like IP and goodwill. Tangible assets in physical items like inventories, factories and land just don’t possess the growth and scale-up speeds implicit in mass-adoption IP. Tesla is still just a manufacturer of physical stuff but has managed to achieve a $550 billion valuation which exceeds the combined value of all the other auto manufacturers on the planet. How does a tiny Tesla 0.6% market share translate into capital markets dominance? Check out the chart below from the excellent Visual Capitalist analytics site which highlights the huge asset shift to intangibles within the S&P 500 index.

    Thirty five years ago less than one third of assets were intangible. Today’s 90% figure gives a clue as to what is driving Tesla and technology company valuations. Specifically, investors are attaching huge value to Tesla’s lithium-ion battery technology and the next chart illustrates that emerging trend/opportunity. The lithium-ion battery market is expected to more than quintuple by 2030 according to Bloomberg.

    Despite these two favourable trends many still struggle with the Tesla to-infinity-and-beyond valuation. Well, maybe not infinity but how about space? China has just launched a lunar expedition and the DiaperDon has added a Space Force to the gargantuan US defence budget but there are more immediate commercial initiatives afoot. Elon Musk’s primary wealth vehicle might be Tesla but his rocket company SpaceX is possibly the stellar trend to watch.

    Space is the new data frontier and SpaceX has launched more than 500 Starlink satellites to ultimately beam high-speed broadband from orbit to anywhere in the world. Infinity indeed. Current plans entail a constellation of up to 12,000 satellites in low-level orbit and one does wonder why this project is generating less attention than Tesla.  For a more detailed and prescient analysis of SpaceX’s strategy Gavin Sheridan’s recent article in The Currency is worth a read. More intriguing is Sheridan’s view – held impressively since 2015 – that Teslas’s fleet of electric vehicles have a role to play in this broadband network. The mind boggles but there is no doubt investors are going to hear a lot more about galactic opportunities in the next decade.

    Prepare for daily trillion dollar valuation shifts too as these three trends accelerate.

    Or as Captain Kirk said, “Set phasers to stun”.

  • Banking on Digital Destruction?

    Banking on Digital Destruction?

    Crikey, that was an awful dose of George (g)Lee on the radio this morning. The intrepid RTE correspondent for Science is building quite the reputation for gleeful gloom. Yes, the pandemic data is stubbornly flatlining but to opine that the critical R-rate “must be over 1.0” ventures into emotional bias territory rather than the realm of science and analysis. Perhaps he will be right but the more immediate benefit of George’s latest BULLetin was to prompt some self-reflection. Do I exhibit similar emotional bias in certain areas? I often wonder if I am too gloomy on the prospects of the banking industry so this might be a good week to introduce some balance. And, it has been a good week for banks.

    Banking is about the provision of debt capital – more on that later – but it was other areas of the capital markets where the good news was to be found. Thanks to positive vaccine news bank share prices have been on a tear. AIB’s share price has rocketed up over 50% in the last 8 weeks. However, that 8 week period referenced hints at more than just vaccine relief. Whisper it quietly but inflation or reflation is working its way into market forecasts and that helps the banks.

    It also helps when there is a general rotation into VALUE stocks which is typical when investor confidence in economic growth picks up rapidly. Investors have not been too picky and a basic trading strategy of buying the most depressed share prices has worked very well. Oil and banking shares are very much in that depressed cohort and are enjoying much needed buying activity. Like George, investors could be correct but such affirmation could depend on one’s time horizon. You have read about a “Great Rotation” out of the pandemic stars in technology and healthcare. The less polite might refer to the investor switch as a “flight to sh*te”. Both descriptions tend to suggest investor enthusiasm is brief and lacking any real fundamental conviction. However, there is market activity elsewhere which illustrates greater conviction.

    Spanish banking giant, BBVA, has just announced the sale of its US franchise to the top 5 US player, PNC. The American purchaser is making an interesting strategic move and the value of the deal at $11.6 billion is the largest banking transaction since Lehmans collapsed. Particularly striking is that PNC have funded the deal with the sale of their stake in fund management behemoth, Blackrock. Please note strategic shifts out of fund management into traditional banking are as rare as evidence of fraudulent voting in the US these days. Other merger activity is happening in Spain with Bankia/Caixa and BBVA/Sabadell tie-ups plus the intriguing rumours of a monster Swiss deal between UBS and Credit Suisse. These are not short-term ‘rotations’ or trades. They are big long-term management calls which require confidence. However, they could also be described as “defensive” moves and news closer to home does trigger a bit of George in me.

    Ulster Bank’s Dublin HQ not only sits on George’s Quay but could in a matter of years be empty. Ulster’s parent, Nat West, has acknowledged the future of the bank is “under review”. One of the less desired options is that the bank is put in run-off mode if it fails to attract a buyer for its Irish operations. Just to remind readers, run-off is the modus operandi of a “bad bank” like the IBRC successor to the Anglo-Irish casino. What is remarkable is that Ulster Bank is not a bad bank and currently sits on €22 billion of deposits and a loan book of more than €20 billion. I have read wise commentators elsewhere describe this as the biggest banking news in Europe for years. In effect, it is a bank deciding its traditional banking business model is capital destructive ie its cost of capital exceeds its returns on that capital. You do wonder what was the straw that broke the camel’s back?

    Banking is tough these days. Even tougher with a pandemic setting your loan book on fire but that’s a cyclical/one-off(?) challenge. The triple whammy of structural challenges from ultra-low interest rates, soaring regulatory costs and technology catch-up/competition are well documented and long-term. This writer’s personal view is that technology is the big one, the asteroid. These banking beasts are manifestly ill-equipped to develop technologies and compete with digital platforms unburdened by legacy businesses and IT infrastructure.
    The truth is that, even if the banks catch up on current technologies, the pace of change is too hot and remains a potential extinction event if capital is exhausted to merely survive the first hit. First, you ask? Well, we are not great as a species on the forecasting front but it might be worth noting the words of Bank Of England’s chief economist, Andy Haldane, this week. Whether you are looking for an Ulster Bank final straw or straws in the wind, the Bank of England has floated the prospect of ditching cash and replacing it with a digital currency. Haldane sees it as a necessary tool to facilitate negative interest rates; and feasible thanks to the emergence of blockchain technologies and cryptocurrencies.

    So, no surprise to see Bitcoin’s price roar past $18,000 this week , a three year high. Joy for crypto traders but no such glee for bank executives still pouring billions into digital transition projects. Imagine throwing a digital currency into the technology mix!! Now, what are the chances Nat West’s management got wind of Bank of England thinking and moved into extreme defence mode? We just don’t know… which is what we wish George would say more often.

  • Three Big Little Lies

    Three Big Little Lies

    Feel better this week? This writer’s own sense of things is that good news often comes in threes. What’s not to like about a potential Covid-19 vaccine, a law-abiding US President-elect and commensurate increased pressure on the UK to comply with international treaties in Brexit negotiations? Anyway, less of the rhetorical questions; the week also threw up three awkward answers which might not tally with the current feel–good narrative. Indeed, we are reminded of the King of the Swamp Castle’s words in Monty Python’s ‘Holy Grail’ movie – “This is supposed to be a happy occasion. Let’s not bicker and argue about who killed who”. So, let’s address those deaths first.

    Despite almost 250,000 Covid-19 deaths in the US, more than 70 million voters didn’t think the shambolic pandemic performance of the Trump administration was a presidency killer. Yes, international reaction to a Biden victory has been very positive but there are real concerns about such a huge number of people keeping faith with Trumpian ‘values’ and the enabling behaviours of the craven GOP political leadership. The good news is that demographic trends indicate a GOP in decline – take your pick from youth votes, female votes, increased education and minorities population growth. They are all travelling in a dangerous direction for the GOP but a huge turnout has delivered a misleading 70 million voter number.

    The truth in the data is that the demographic voter margins are widening, even accelerating. Perhaps, the biggest shock of the week was how close(initially) Trump came to winning. The ugly reality in the US is that voter suppression, gerrymandering and an outdated electoral college system is the GOP’s survival strategy and keeps up the big little lie that almost 50% of the country is in the MAGA cult. The worry going forward is that disputing a clear-cut 2020 election win is only the beginning of GOP desperation strategies. Prepare for a GOPocalyptic vision for the US; current control of the Senate and the US Supreme Court could lead to further and far more blatant destruction of democratic intent.

    The UK is also smashing all the wrong records in its pandemic containment strategies but has added economic hara-kiri to its challenges. The economic intent and understanding of UK Brexit voters plastered on buses in 2016 is rather different to the realities of today. The big little lie in UK is that a population of 65 million souls can leverage greater trade opportunities than a 600 million person market with the rest of the world. The Confederation of British Industry(CBI) has recently totted up the cost/benefit of EU membership since 1973. The CBI reckons total costs/contributions of £215 billion over 45 years have delivered an annual return value of £70 billion or £3.25 trillion. Total expenditure on Brexit since 2016 is already at £203 billion, per the CBI, with a return value of…… ? Take your pick from trade wreckage, international ridicule, Kent borders and lorry parks, break-up of the Union and loss of travel rights. Sadly, Ireland will have to share some of the pain but also needs to rid itself of its own big little lie.

    The Irish pandemic response has received positive reviews in the main and the economy has shown amazing resiliency thanks to a multi-national sector heavily exposed to technology and healthcare. However, we have previously written about the K-shaped nature of our economic recovery. The SME sector employs more than 1 million people and has suffered huge hits to revenues and balance sheets. The government has made plenty of noise about a €6.5 billion package of financial support for SME firms. Up to €2 billion of that was intended to be a flagship scheme of loans 80% guaranteed by government with 20% of the risk taken on by our three banking horses of previous apocalypse – AIB, BOI and Ulster. So how’s that working out? Well, the Department of Business, Enterprise and Innovation has published some figures.

    Remember that €2 billion of available funding and the very obvious SME distress for all to see? For context, the country has about 250,000 SME firms. Now the big little lie. Well, you’ve seen the big numbers – 2 billion and 250,000. Now try the little ones – 43 million and 743 respectively. Yep, a grand total of just €43 million has been approved for distribution across just 743 loans in the SME sector. Clearly, something is terribly wrong with this funding solution – previous writings here would query debt instruments and traditional banking platforms as an unattractive combination. However, do not be fooled into thinking reluctance to borrow equates to an absence of need. For context again, we note Central Bank deputy-governor, Ed Sibley, stating that Irish SMEs face combined losses of up to €11.7 billion in 2020 alone.

    Government support for SMEs is not working and is now in big little lie territory. The silence on alternative thinking and solutions is deafening. In fact, if you listen very very carefully you might just detect the distant sound of coconut claps and the deluded knights of Kildare Street crying “Run Away! Run Away!”

  • 10 Popcorn Pointers For US Election Watch

    10 Popcorn Pointers For US Election Watch

    It’s not over until the fat fella swings. It is probably too optimistic to hope that the Mango Mussolini’s demise mirrors one of his tyrant heroes but the TV viewing will still be brutal. Yes, this writer has cast off the scars of 2016 and is pretty certain Biden wins. But….the ‘how’ is where the popcorn comes in and we might need more than a one night supply. Let’s start with the boring stuff.

    Polling since June has shown Biden winning by a rock steady 8-10 point margin. This is not the 4 point gap Hilary enjoyed before actual voting and the under-polling of non-college white voters. Guess what? Biden is polling much better with white voters than Hillary in 2016. Nate Cohn of the New York Times reckons the Trump white voter advantage has shrunk from 13 points to just 5 points. The indications are even worse for Trump in the seniors(>65) vote.

    Exit polls in 2016 showed Trump winning that cohort -18% of the electorate – by 7 points. This time, CNN and…. FFFF..Fox, are finding double digit leads for Biden. Amazing how a senior-killer like Covid-19 can shift priorities from medieval wall building. Anyway, enough of the obvious. Here are 10 things to watch which are far less certain over the coming days:

    1. Pennsylvania: This could end up as the ‘firewall’ state. It is conceivable that Trump clocks up early wins in Florida, Georgia, Ohio and North Carolina. None are a sure thing but one can imagine the momentum it would create for a Trump campaign eager to sow doubt and demonstrate a route to victory. If Pennsylvania exit polls can support polling indications of a 5 point Biden win then Trump’s electoral college tally hopes take a major hit.

    2. Legal Challenges: As a rough guide it is expected that the early voting total of 95 million votes is running 2:1 for Biden. Conversely, the expectation is that the 60-70 million votes on voting day will possibly run 2:1 for Trump. The scary thing is the early votes(mail-in) might not be known on the night and present a desperate Trump campaign with an opportunity to claim victory and try to stop later counting of mail-in votes. Florida completes all vote counting early so it could become critical in preventing GOP malfeasance.

    3. Turnout: The total vote is heading for 160 million thanks to staggering levels of early voting. It will be interesting to see how big the turnout is for independent and first time voters as they could tip the balance in ‘swing’ states and even GOP strongholds like Texas.

    4. Youth Vote: Texas saw early voting in the young population increase seven-fold. This voter bloc could be the equivalent of the 2016 under-polling of non-college educated whites. And possibly lethal for the GOP with its dinosaur policies on healthcare, female health, the climate and immigration.

    5. The Senate: There are 35 Senate seats on the polling cards this week. The GOP holds 23 and currently control the Senate 53-47. If Biden wins, the Democrats need to win 3 extra seats to flip the Senate. Maine and Arizona look likely wins for Democrats against GOP incumbents so the tight races in Georgia, South Carolina, Iowa and North Carolina could be very spicy.

    6. Social Media: Big Tech and social media is under huge pressure to vet information/distribution carefully in a highly charged environment. One can only hope because…..

    7. Civil Unrest: Boarded up streets, fences at the White House and terrifying levels of gun and ammunition sales speak to a society stoked with fear. The cult-like certainty of a “win” held by sizeable portions of the US population is real. How people react to a shock is difficult to predict but record gun sales do not augur well for a calm election aftermath.

    8. Fox News: Fox and other conservative media platforms like Breitbart and OANN could be faced with an awkward reality if polls enter landslide teritory. The temptation to play the conspiracy card will be strong. So, it be will be both fascinating and unnerving to watch the key Trump cheerleaders like Hannity, Tucker Carlson, Maria Bartiromo and Lou Dobbs try to weasel more “winning”.

    9. Markets: The short term bets are already placed on a Biden win. Potential long tail events which would massively increase volatility would be legal challenges/uncertainty over the result and civil unrest.

    10. Hope: A clear victory for Biden and a peaceful transition of power would help restore US leadership on the global stage. It is needed. The Covid pandemic, climate change, income inequality and fundamentalism(home and abroad) are global challenges needing measured leadership, not Agolf Twittler.

    Stock up on the popcorn!

  • Biden Our Time For A Landslide?

    Biden Our Time For A Landslide?

    The UK media loves battles. However, they really are scraping the bottom of the barrel (or Channel) these days. Of course, the Viagra-by-Video readers of the Daily Mail and the Spitfire Brexiteers loved the thwarting of a tanker hijack by the Special Boat Service(SBS) earlier this week. Even better, if there is footage of night-vision goggles, 40 commandos, ropes, rapelling, choppers, high seas and thermal imaging to accompany a “Storm the Andromeda!”  headline and a swift 9 minute victory for “ruthless, military precision”. But before Elgar’s wind section could strike up a triumphant Rule Britannia soundtrack one tiny detail emerged which slightly changed the tenor of the threat faced.

    Apparently the 42,000 ton tanker was under threat from seven desperate stowaways who had smashed some glass and threatened to kill the crew if they were locked in their cabins. No bombs, no chemicals, no AK47s, no knives, just desperation and incredibly poor timing – the huge tanker was just passing the Poole HQ of the SBS. Indeed, the one-sided nature of the battle did remind me of Captain Blackadder in the WW1 trenches pining for earlier British campaigns “where the kind of people we liked to fight were two feet tall and armed with dried grass.” While we can laugh at this fictional wish for an easy victory the thought of the same in the context of the US election is far more serious and threatening for both the domestic media and the Republican side.

    The prevailing narrative right now is that Joe Biden is winning by a big margin(8- 10 points) but that the gap is closing and currrent polling is failing to capture the “hidden” bloc of Trump voters which delivered victory in 2016. I might be presenting myself as a hostage to voting fortune here but I’m racing towards a non-consensus view that the election will be a landslide delivering not just the White House to Democrats, but also the Senate. Predictable wins don’t provide ‘drama’ or viewers for the media and Republicans still need their voters to turn up and avert a Senate disaster. “Loser” is a uniquely American insult and explains why the perception of a tight battle is essential to motivate voters on the probable losing side. Why probable? Here’s a few data points…

    In the 2016 election 138 million votes were counted out of 250 million eligible voters. That’s more than 100 million voters who didn’t show up.

     Early voting tallies are staggeringly high. Already, there are close to 75 million votes cast which is more than 50% of TOTAL votes in 2016 and more than the 63 million won by Trump.

     Texas early votes are now heading towards 90% of total 2016 votes. Dawson County in Georgia is already over 100% of the 2016 total.

     Latest polls from “swing” state Wisconsin put Biden a whopping 17 points ahead of Trump.

     At current voting rates there will be a turnout of close to 65% which would equate to more than 160 million votes cast. That’s 22 million more votes than a 2016 national total which Democrats actually won by 3 million votes.

    Boat parades, super-spreader rallies and millions of “hidden” Trump votes strike us as more Blackadder than Bloomberg. The data does not lie and we referenced Wisconsin deliberately. A Trump win by a tiny 22,000 votes in 2016, the state is now in the grip of an acute Covid-19 crisis, desperate mail voter suppression by its state Supreme Court and economic challenges. The pandemic is not just killing Americans in record numbers, it is killing consumer confidence and the GOP in many swing states. To add insult to pandemic injury, China has won the trade war(US farmers and Wisconsin lost) and has returned to relative economic normality. America hates losers. However, do not assume a Biden landslide is a “win” for Democrats …..or financial markets.

    Clearly, an undisputed win for Biden will avoid a constitutional crisis but an extreme winning margin could create serious social unrest among shocked GOP voters fed a daily diet of “winning” from Fox, Breitbart and OANN broadcasting platforms. Also, markets can behave in very counter-intuitive ways despite perceived political positives.  The excellent John Authers touches on that point this week in his Bloomberg article, “Trump Was Great For Mexicans, Terrible For Coal”.

    Yes, coal and oil stocks have had a horror Trump show but the Mexican peso, cash flows south of the border and trade(NAFTA re-jig) have gone well. Also, the technology sector would hardly be considered close to the hearts of the MAGA cult but has boomed. However, consider this a collector’s item; this column would not hold Trump responsible for these outcomes. Structural trends and capital flows don’t really run on Presidential cycles. So consider the following two structural trends as likely headwinds for markets in a Biden administration:

    1. China geopolitics/trade – there is an unusually bi-partisan view in Washington that China is a threat which must be confronted. Trade has been the initial salvo in this confrontation but digital(internet) decoupling is very much a possibility as data security grows in criticality and follows Huawei and Tik Tok headlines.
    2. Google is already facing the biggest antitrust case in a generation but might be only the opening act in a global political move to challenge the supra-sovereign power of Big Tech.

    The technology sector is potentially in the cross hairs of both structural risks above and currently accounts for 25% of the S&P 500 by weighting. We don’t have any crystal balls but change can spook markets. Narrow political wins rarely achieve much change, ask Donald. A landslide Biden victory will bring its own pressures for change. Think of five “T’s; taxes, technology, trade, temperatures(climate) and treaties. The final one is a bit cryptic but might be the most divisive and explosive.

    By treaty we don’t just mean sovereign treaties between nations. We mean a legal framework for multiple citizens within a nation, like say…. The US Constitution. Trump and William Barr, his Attorney General, have trampled all over it. The Supreme Court is now in “originalist” conservative hands thanks to a Senate with an outdated composition. As things stand, North Dakota with a population of less than 1 million has the same number of Senator representatives as California with 40 million. Landslide elections can signal a societal backlash, and big change. Watch the voting turnout, not Fox news or even financial markets.

  • No Funding Limits As Lockdown Bites

    No Funding Limits As Lockdown Bites

    Here we go again; Lockdown II, and like many sequels, lacking any originality. I’ve heard some refer to this as a ‘Lazy Lockdown’, as in lazy thinking. Certainly, the one-size-fits-all travel restrictions for both urban and rural areas smacks of convenience rather than initiative. Anyway, the good news is that some business sectors have had time to prepare and hopefully battle through the latest challenges. This is a positive reminder of how commerce and capitalism finds a way forward. Not so, permanent government and the HSE who seemingly made no new plans for the seasonal return of Covid-19 and the surprisingly (not) consistent spike in non-Covid hospitalizations through the winter months…every year. Seriously, who knew? There is no sign of a fix to that perennial procrastination problem but there is better news in the business world.

    We mentioned previously that commerce and capitalism finds a way. Specifically, capital has an unusually stubborn ability to flow into the economy whatever the challenge. The return of confidence and capital is critical in every downturn but what is striking about this global crisis is the huge variety of funding sources emerging; a powerful mix of the old and the very very new. Let’s start with the older funding methods first.

    We have often stated that if one wanted to gauge levels of business confidence then watch what managements do rather than what they say. Well, companies have been writing some serious cheques as merger and acquisition activity has had its busiest summer in 30 years. Data firm, Refinitiv, has reported Q3’s combined value of transactions at more than $456 billion. The technology sector alone accounted for $226 billion of the action. Interestingly, another traditional source of deal-making capital is also making its presence felt. Year to date, private equity houses have accounted for 15% of all M&A activity per Refinitiv. We haven’t seen that level of Barbarian gate-crashing since the pre-2007 credit bonanza. It is safe to say high yield (junk) bonds still have a big fan base but it’s not just Wall Street private equity tapping that enthusiasm.

    One of Ireland’s most successful (if not the most) proponent of high yield debt funding is Paul Coulson and the Ardagh Group. And, they are sounding confident. Even after two decades of deal making and a massive $5.5 billion debt load they have announced plans this week to plough another $1.8 billion into their drinks cans business. It is not just entrepreneurs with multi-decade track records receiving serious backing from the financial markets. Two young Irish companies, Wayflyer and LearnUpon, have just received almost €70 million of funding from specialist start-up financing houses in the past few weeks. One might say these are the “new” banks for smaller businesses but even the old banks are finding new missions. Check out the Big Daddy of them all, the ECB.

    The EU is launching a series of 10 and 20 year bonds to fund the social needs of Member states following the pandemic and its consequences. What is extraordinary about this €100 billion programme is that the risk is SHARED across Member states and marks a departure from individual states seeking funding from financial markets. The first bond was auctioned by the ECB this week looking for €17 billion of capital. The demand was enormous with the issue more than ten times oversubscribed. Yes, almost €250 billion of demand(or a quarter of a trillion euro) wanted to fund this new experimental funding instrument. That is not the end of the new. We save the most revolutionary move until last…

    We know our future is digital. But, our money? Check out the announcement from payments giant , Paypal, this week. It plans to allow users to “buy, hold and sell cryptocurrency” directly from their Paypal accounts. Yes, cryptocurrencies have been around a while but really only at the margins of everyday commercial activity. The initiative from PayPal is massive because they are massive. They have 346 million accounts globally and are annualising processed payments of close to $1 trillion. Now, one can conceivably pay for your coffee or anything else with a cryptocurrency at any of the 26 million retailers who sit on PayPal’s payment systems. Revolutionary stuff.

    All of the above points to an expansion of funding channels and capitalism finding solutions to current business problems. This also signals a confidence in the scientists and an eventual vaccine for Covid-19.

    Business funding is not a new thing but is always evolving, and often funding recovery. Indeed, look back to the 15th century and you will find the Medici bankers of Venice financed the Renaissance. History gives us plenty of hope. Sadly, ignorance of history (and recent winters) can do just the opposite.

  • Democracy Winning Voters and Investors

    Democracy Winning Voters and Investors

    Pretty depressing week, eh? Not even a DryRobe can warm the spirits. Our leaders have clicked their heels three times this week and eventually told us, “There’s no place, but home.” Soon we will fantasize about the simple things in life and once again appreciate basic freedoms. That’s maybe not a bad thing. In fact, far far away from the Emerald Isle there’s a storm brewing with fantasy-like good news possibilities. Not Kansas this time, but Texas.

    Early Presidential election voting has started in some US states and one data point just jumped off the page this week. Voter registration in Travis County, Texas, has rocketed to 97% of the county’s estimated 850,000 eligible voters. Yes, US elections have dominated international headlines through every Presidential cycle, not just Trump’s, but has never captured the full attention of US voters. Turnout, even in the highly polarised 2016 election, was just 55.5% of eligible voters. The brutal fact is that more than 100 million of the 250 million eligible US voters didn’t vote last time. The issue is more complex than a simple desire to vote. Frankly, voter suppression has been a fact of life for many citizens. Moreover, despite Trump delusions and Fox fake fears, voter fraud is negligible. Here’s a few headlines to give a flavour of the ongoing battle to vote, and a sense quite a few of the missing 100 million have had enough:

    • Long Lines Mark The First Day Of Voting in Georgia – Washington Post

    • Ohio’s Quarter Mile Early Voting Lines? – The Guardian

    • Federal Court Sides With Texas Governor Limiting Mail Ballot Drop-off Sites – CNBC

    • Californian Republican Party Admits It Placed Misleading Ballot Boxes Around State – New York Times

    • Record Early Turnout With Three Weeks To Go – Reuters

    Despite waiting times of up to 10 hours, suspicious failures of voting equipment and a mis-match of facilities for urban and rural voting communities, a whopping 14 million people have already cast their ballots in the first few days of the election. The most egregious example of Texas Governor Abbot’s suppression attempts is the provision of one drop box for mail-in votes for a population of over 4 million in Harris County. This less-than- subtle suppression wheeze is disguised as a policy of one drop box venue per county. Except, per the Guardian, Harris County “has – and this is not a typo – 2,780,000% more residents than the least populous” county. JR Ewing would be impressed. Urban voters less so, but they are fighting back with the most basic of freedoms despite the challenges.

    The US has difficult days ahead but renewed civic engagement by its citizens and a determination to utilise the right to vote is an encouraging start. The other encouraging news is that financial markets are reasonably relaxed about a potential Biden win on currently huge polling leads. So much for Trump claims of markets loving his Presidency. In fact, this period of policy chaos could soon feature in financial textbooks as Exhibit A in the all-too-common experience of investors confusing causation with correlation. Maybe markets like democracy after all?

    Indeed, the phenomenon of huge numbers of new retail traders opening investment accounts can be considered a democratization trend too. Thanks to user-friendly technology platforms and almost-free commissions the likes of Fidelity, Schwab and Robinhood have introduced millions of users to financial markets for the first time. No longer the preserve of big banks, hedge funds and private wealth managers, financial markets are opening up and the little traders are making their mark. The numbers do not lie; individual trader activity now accounts for an estimated 20% of all trading volume, and up to 25% on days of heavy volume. That is double the levels of retail activity seen in 2019. Of course, there are concerns that extraordinary levels of activity in sophisticated derivates/options markets, “hot” IPOs and SPACs might not be the best place to begin one’s investing life but that misses two key catalysts. The arrival of super fast technology on any mobile device and fee-free entry are structural changes which can’t be reversed. Hi-tech investor platforms and low costs are massive drivers of investor engagement. It is not just a Wall Street phenomenon. Consider the following:

    Peer-to-peer and marketplace lending has invested/funded more than €40 billion of loans to SMEs and property companies in the UK and Europe since 2011.

    UK equity crowdfunding platforms, Crowdcube and Seedrs, have introduced hundreds of thousands of investors to SME and start-up companies with almost €2.5 billion of monies invested.

    The Irish Venture Capital Association(IVCA) recently published its survey results showing the highest levels of investment in Irish start-ups on record in Q2 2020.

    That last survey caught the eye with investment totals of €363 million up 58% compared to the same period 12 months earlier. However, first-time funding for start-ups fell by 60%. This was understandable in the middle of maximum pandemic uncertainty but also highlights the opportunity for individuals without access to fee-charging venture capital funds. Think back to our earlier observations on opportunities presented by technology and zero commissions.

    Now think about democratization of start-up investing. Would it surprise you to know the Spark Crowdfunding platform saw a 75% increase in new investor accounts in the same Q2 period? After this read you won’t be surprised to know that the combination of an easy-access technology and no fees is a big winner. But, not the only winner. An individual investor can be a Dragon in the start-up Den for as little as €100 and find the next Palantir or Snowflake. Of course, most readers might never have heard of these companies a few years ago but it’s difficult to ignore Snowflake having a higher market value than the once mighty BP right now! It might even irritate you.

    The good news is you’re probably already at home and don’t need to kick or click your heels in frustration. Just click on www.sparkcrowdfunding.com and familiarise yourself with exciting companies like Motarme, Horsepay, HaloSOS, BusterBox and Frequency. No fantasy trips to Oz required, just follow the crowdfunding road to great start-ups, interesting opportunities and financial democracy.