Weekend wrap

Kuppy’s KEDM has been released.

• Spinoffs: EVR in London is spinning off its coal assets, TPK (private equity) is spinning off Wickes (the top for DIY suppliers?),
• Loeb has started to buy into $INTC. Intel used to be the IBM of semiconductors. Can it do a $MSFT?
• $SNOW is falling as unlocks continue.

Supply and demand

There is an old saying in economics: “never reason from a price change.” I think this means that price changes can result from changes in the supply schedule or the demand schedule (or both): you can observe the price of transactions but you don’t see which side of the pair of curves has moved. We can observe changes in the accounting return on a stock, and tend to assume that the demand is controlled entirely by changes in expected return: it’s the secondary market, right: the number of shares in issue is fixed, right? Well, wrong on several counts. The supply changes because companies are constantly issuing new shares for management share awards. But managers don’t want to risk dragging down the share price as a result, so they tend to have the companies buy back the shares to sterilize the dilution that would otherwise occur. But, more importantly, demand is a fashion thing. Everyone wants to get hold of cryptocurrencies, not because their return has changed, but because more people have heard about them. This goes for stocks too. Asset allocators gotta allocate. They shift demand from bonds to equities to venture capital to private equity to real estate and then to crypto. And then to any new ‘asset’ that can be fabricated: maybe a hedge fund.

People in the markets love to analyze the return characteristics of stocks, and measures of comparative demand, for example discount curves and vol surfaces. But fashion is a powerful thing. It may be more rewarding to spend hours reading posts on reddit.com/r/wallstreetbets than to spend an equivalent time reading The Economist.

Twttr

Listening to bears is as important as listening to bulls. The old saw is “bears are often right, but always early”. Being bullish is jumping on the trend. Being bearish is knowing when to get off.

— Jamie Mcullough (@JamieMcullough) April 18, 2021