A lot of post-Covid problems have been laced at doors of supply chain problems. It’s a misleading idea because the words evoke a mechanical conveyor of goods where in fact there is a lot more to it than that. One of the big problems was not the conveyor of goods down the chain but the stock needed to fill the pipeline. Companies destocked during Covid, turning their inventory into cash, because of the twin necessities of suppling their goods when their production was stopped and because they needed the cash and one place that can come from is stock levels. When the world restarted, not only was production still disrupted but there was a dearth of stock at most parts of the production pipeline to get production back up to normal levels.
A lot of that is now well behind us, but one kind of stock is still in shortage. That “stock” as it is called in various amoral parts of the modern economy, especially in silicon valley, is people. Nurses need to be trained, so do lorry drivers, brain surgeons, rocket scientists and burger flippers. The veterans retire every day, so if you stop training any group of workers for a period equal to a percentage of their expected career life, you are going to be that short-handed at the end of that regime. This is a major part of the recovery of the world economy from Covid and it is of course underway.
There is also the matter of business. Launching a product, cementing a joint venture, starting an ad campaign or hiring new staff is a rolling process. You halt that process and that injects an air bubble into the feed line of commerce that takes a long time to bleed through. If business process A leads to process B to process C after two years, people who work on process C won’t get to see a sudden drop in demand for two years after the world stopped because momentum is still feeding their activity from processes in the long past. A lot of professionals are feeling the pinch right now because of the Covid process all those months ago. Conversely, processes like takeovers take a long period to restart but when they do there is a flush of them. Rather than a delayed drought cause by disruption, activities like takeovers go straight into drought and then into flood.
A flood of M&A is exactly what the U.K. market has started to experience. The U.K. market is stuffed with great “Buffett cheap” blue chip companies, but no one has been snapping them up because of the lag in getting these deals done. That lag made for a drought in M&A but now the first wave of takeovers have arrived.
This means a rally is clicking off and the ossified FTSE 100 is due a boot up the pants.
Here is the chart:
I like to say, “charts are great for predicting the past” and that can be extremely valuable as you acid test your theories because the market knows first when things have changed and those changes are in the way the chart trades.
The FTSE 100 has lost its volatility, which means it knows better what is coming next. It is chugging upwards.
The market is filling up with M&A and this is bound to turn into a torrent this year as the world’s corporations pile into U.K.-listed companies with bargain bin valuations often representing 60%-90% discounts on valuations elsewhere.
The U.K. market performance since 2000 has been pitiful but that may be about to change as the U.K. stock market is going to go up and enjoy a renaissance, or up and bye-bye.
Either way, it is up, and up for a long time and a long way. An all-time high is on the way and then many more.
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