"If you can dream it you can do it", Walt Disney

Donald Trump can brush up his diplomatic skills as he meets Xi Jin ping this week, with North Korea appearing to be the bargaining chip. The meeting is taking place at one of Mr Trumps golf clubs in Florida, despite apparently, the Chinese leader not a golfer. Donald Trump has made several controversial comments regarding China, particularly where trade and North Korea are concerned. Equity markets seem to take geopolitical risk so much more in their stride in the current environment.

It remains a funny old world, equity markets may be taking no notice of an increase in geopolitical risk, but one must question whether other asset classes are, as yields on the US treasuries continue to fall. Yields on the ten-year treasury are now lower than where they started the year. The yen has now regained all its losses against the US dollar from the time Trump was elected.

On Monday, the manufacturing and services PMI data for the US economy for March were released. The data looked healthy overall, however there were a few signs of a modest slowdown. It was similar picture for the UK economy from Markit’s manufacturing PMI. After the rises in the past months this may only be expected, and the readings are not forecasting a contraction in either services or manufacturing.

The Bank of England released the minutes of the last Financial Policy Committee meeting, and again flagged concerns over the level of consumer credit. These concerns could be a tad hypocritical, as the Bank of England were the one responsible for cutting interest rates last August to record lows to boost the economy. It just feels more and more likely that Mr Carney and the Bank are getting themselves into a pickle and may be forced to raise interest rates at just the point they don’t want to.

Tesla are now worth more than Ford Motor Company in terms of market capitalisation. Ford trades on a price to earnings multiple of 7, has a dividend yield forecast to be 6%, and trades at 30pct of its sales, which currently stand at circa $140bn a year, against Tesla’s $10bn. Tesla makes no profits, offers no yield and trades on 10x its turnover. The difference Tesla has compound revenue growth of 100%, against Ford which have seen no real revenue growth over the past 7 years and whose profits have been shrinking due to margin pressure. Henry Ford was a man ahead of his time, the current management need to have his vision as the times they are a changing.  Elon Musk may well be seen one day as the Henry Ford of his day. At least that appears to be what the stock market expects

Posted on April 4, 2017 .