What would the world do without Mr B to hold its hand?

What will the investment community do when it no longer has Warren Buffet to cheer them up? On Monday it was disclosed that Mr Buffet invested over $1bn in Apple shares and raised his holding in IBM. This news lifted the price of Apple shares, which in turn helped the S&P 500 to rise almost 1% on Monday. Mr Buffet has historically been vocal in his aversion to investing in technology companies. His view predicated on what he does not understand he does not invest in.

Apple historically would have been considered an investment that would attract higher risk growth orientated investors. This would now appear to be changing as the company struggles to bring in new innovative products, and is likely to move to a more utility like profile. The focus will turn to capital return, probably why it has now caught the eye of Mr Buffet.

One of the recent themes of these blogs is the continual lack of love for equities, the fact that $90bn of capital has been withdrawn this year from US equity funds is one example. The latest AAII retail investor survey reporting that only 20% of those polled think the equity market will be higher in 6 months’ time is another.

To add to this view, as Warren Buffet’s Apple holding was revealed, so was the fact that George Soros has increased his put position on the S&P 500. Mr Soros was the man most famous for betting on the UK falling out of the ERM and the subsequent collapse in sterling in September 1992. We remember it well. Further evidence that fund managers may share this negative view on equities as the latest Merrill Lynch fund manager survey reports that the amount fund managers hold in cash has risen from the previous month. Only 6% of fund managers are overweight equities relative to their benchmark, down from 9% last month, almost 1 point below its historic standard deviation.

Should the next market meltdown be imminent this feels like it will be the first time in history investment managers are prepared for it and part of them may even be wishing for.

On Tuesday we had inflation reports for both the US and UK economies, and there was a marked contrast in both reports. Inflation month on month in the UK came in at 0.1% this was below expectations,  as was the year on year at 0.3%. This weak inflation data will add to the general current concerns over the strength of the British economy.

The picture was brighter in the US as consumer prices recorded their biggest increase in three years. Capacity utilisation also came in above forecasts as did industrial and manufacturing data. This better than expected data probably increased speculation the Fed might move in June. This resulted in equities giving up the previous days Buffet gains, as bonds yields rose.

Finally we mentioned at the start of the week that Japan released first quarter GDP estimates this morning. Year on year the Japanese economy grew 1.7%, well above expectations, this news is likely to take the pressure from the Bank of Japan to add further stimulus measures. 

Posted on May 18, 2016 .