Founder, Market Thinker

Mark Tinker

Founder

Market Thinker

Mark Tinker has over 35 years experience as an investor, market strategist and economist. Having spent more than 20 years as a sell side strategist and being top rated on numerous occasions and surveys he moved to investment management in 2006 to run global equity portfolios in London and subsequently moved to Hong Kong in 2013 to help establish an Investment Management business for a top 20 international asset manager. He first started writing investment weeklies for his employers in 1989, developing a style characterised under the title Market Thinking and has been a regular commentator and presenter on CNBC, Bloomberg and other business channels, where his approach of rationalising market behaviour rather than making short term predictions on high frequency market data provides a welcome balance to his client audience.

Making Sense of the Narrative

Macroeconomics

<ul><li>Will AI kill us, or the companies building it? Or the bond market?</li><li>Will the smartest guys in the room once again blow up markets as their cost of funding rises?</li><li>When will bonds v Equities mean revert? Will Congress take back control of US war(s)? </li></ul>

Will AI kill us, or the companies building it? Or the bond market?Will the smartest guys in the room once again blow up markets as their cost of funding rises?When will bonds v Equities mean revert? Will Congress take back control of US war(s)? 

<ul><li>The standard Central Bank response to higher inflation is to raise interest rates, but the impact on an economy will depend on a) what is causing the inflation and b) the nature of the balance sheets involved.</li><li>Simply following the Fed risks bad outcomes for Europe and the rest of the Anglo Saxon Markets.</li><li>Inflation at the moment is largely cost push, not demand pull, certainly not outside of the US.</li></ul>

The standard Central Bank response to higher inflation is to raise interest rates, but the impact on an economy will depend on a) what is causing the inflation and b) the nature of the balance sheets involved.Simply following the Fed risks bad outcomes for Europe and the rest of the Anglo Saxon Markets.Inflation at the moment is largely cost push, not demand pull, certainly not outside of the US.

<ul><li>The US labour day holiday traditionally marks the end of the summer break for markets, especially in the US, which means not only a pick up in liquidity but also something of a shift to a slightly longer term mindset – the summer having been dominated by a lot of short term trading noise, particularly around AI.</li><li>At the macro level, July had been a relatively stable month for equity markets, but beneath the surface there had been an enormous amount of volatility, particularly in tech stocks, much of it associated with the market mechanics of distressed selling from margin calls and forced buying from short covering.</li><li>There was however another important factor (which we discussed here in Were Style Lags part of the July washout?), which was that passive indexation, once again, triggered some powerful rotations within markets.</li></ul>

The US labour day holiday traditionally marks the end of the summer break for markets, especially in the US, which means not only a pick up in liquidity but also something of a shift to a slightly longer term mindset – the summer having been dominated by a lot of short term trading noise, particularly around AI.At the macro level, July had been a relatively stable month for equity markets, but beneath the surface there had been an enormous amount of volatility, particularly in tech stocks, much of it associated with the market mechanics of distressed selling from margin calls and forced buying from short covering.There was however another important factor (which we discussed here in Were Style Lags part of the July washout?), which was that passive indexation, once again, triggered some powerful rotations within markets.

<ul><li>The Software/ hardware trade in H1 was effectively a growth/value trade, but not in the traditional sense of active investor style bias.</li><li>Hundreds of billions of dollars tracking style or factor benchmarks like ‘Value’ were actually long Micron, Sandisk and Google and then flipped them out at end June, replacing them with what were previously called growth stocks like Microsoft and Apple.</li><li>Meanwhile, growth benchmarks that were long Microsoft and Apple, now have Micron and Google.</li></ul>

The Software/ hardware trade in H1 was effectively a growth/value trade, but not in the traditional sense of active investor style bias.Hundreds of billions of dollars tracking style or factor benchmarks like ‘Value’ were actually long Micron, Sandisk and Google and then flipped them out at end June, replacing them with what were previously called growth stocks like Microsoft and Apple.Meanwhile, growth benchmarks that were long Microsoft and Apple, now have Micron and Google.

Were style lags part of the July washout?

<ul><li>While most long term thematic investing is aimed at long term growth stories, there are shorter term, but still meaningful, themes that are more cyclical in nature and reflect the sharp rise in profitability from operational leverage.</li><li>Indeed, we have often said that the biggest reason that economic forecasts and stock market profits diverge is that the economic forecasts tends to ignore operational leverage – they assume that a 5% rise in nominal GDP equates to a 5% rise in sales and thus a 5% rise in profits.</li><li>Except that’s not always what happens. Bottom up investors, as opposed to top down macro traders, known that sales can rise by market share gains, by a shift in pricing power independent of GDP or by new products and services.</li></ul>

While most long term thematic investing is aimed at long term growth stories, there are shorter term, but still meaningful, themes that are more cyclical in nature and reflect the sharp rise in profitability from operational leverage.Indeed, we have often said that the biggest reason that economic forecasts and stock market profits diverge is that the economic forecasts tends to ignore operational leverage – they assume that a 5% rise in nominal GDP equates to a 5% rise in sales and thus a 5% rise in profits.Except that’s not always what happens. Bottom up investors, as opposed to top down macro traders, known that sales can rise by market share gains, by a shift in pricing power independent of GDP or by new products and services.

Operational Leverage, not financial leverage