Rebel Review - July 1st

the week in review from my perspective.

None of the stuff below is investment advice, just what I have noticed and done over the past week as a full time professional private investor. Do your own research as you obviously make your own decisions to buy and sell. Do proper research. I don’t want to influence anyone, this is just meaningless opinion.

Welcome to the Rebel Review.  When I was running my chatroom up until Jan this year, the Rebel Review which summed up my week was the most popular part of it for most members.  I have had countless people say they miss it, so much so that I have decided to rekindle it on Substack.  I won’t guarantee to do one every weekend, some boring weeks don’t sometimes warrant it and if I have fun stuff planned for the weekend that will take priority. 

Well it was an interesting week this week, namely because the S&P hit a 14 month high this week hit a 7 month low.  I cannot remember these two markets moving in such diametrically opposed directions.  I keep a close eye on a number of indicators such as index charts, the VIX, Fear Greed etc which are good sentiment and direction indicators.  Weirdly I can never remember a time like this where the FTSE250 moved the opposite direction to the US.  As the VIX and Fear/Greed is based on the US movement it means as a guide to the UK it is, at the moment, unreliable.

This is the VIX over 2 years

It is clearly hitting a 2 year low.  Normally I want to be reducing my holdings at this level, it shows the market is over-confident.  I like to be buying shares when the VIX is high.  Suppose I had bought into that spike 4 month ago tho, I’ have been buying into an 8% decline from that point on the FTSE250   

Fear/Greed gives a similar read

I want to be buying on extreme fear, but we are at extreme greed and been at or near this level in the US for some time.

Indicators based on US performance no longer give me a guide to UK stocks, there has been a shift in the interconnection between sentiment of these indexes that I’ve not seen before.  So on that basis I am sort of flying with the autopilot turned off at the moment.  Bearing in mind I always wear a parachute, even on a passenger flight, I am never afraid to pull the ripcord and sell. For now tho, I am prepared to be fully invested in UK stocks on the basis they are not reflecting their true value here.

Not reflecting their fair value is a pretty subjective comment but I see several reasons to believe this.

Yields.  A screen on Stockopedia gives me 29 stocks with a yield of over 10%.  Let’s ignore all of those as value traps or anomalies of some kind.  Below that I get another 134 stocks with yields over 6%. Redrow, Currys, Belway, ITV, Rio Tinto, Aviva, Imperial Brands, Legal & General, Barratt Developments all paying from 6% to 8.6%, most pretty well covered.  This tells me many punters are ignoring shares, seduced by Gilts paying 5% tax-free or 4% from no-nonsense Yorkshire BS.  And who wouldn’t be? The FTSE250 topped out 21 months ago this weekend.  When you have watched your investment decline for 21 months the guarantee of a 4% rise over a year is enticing for many.

So how have we got here?  Well inflation has hit the UK hardest.  The government will get blamed but I can tell you that in the past, as far back as I can remember, the UK always gets hit harder than most by inflation.  Be it dues to us being an island that imports so much or a retail system that hasn’t been as competitive as it should have been, or once government owned monopolies now privatised and taking advantage of their index linked ability to raise prices, it is what it is, to use my builder’s favourite line.

Optimism and pessimism plays a huge part too.  Investors sense a bit of weakening in inflation when they see oil or energy start to top out. They expect inflation to drop.  But it doesn’t react as fast as many hope simply because the fall in energy prices takes a while to affect manufacturers on term contacts that won’t change for months. So it takes a while for a tin of baked beans to be created using the cheaper energy so it’s a while until beans fall in price.  When beans fall in price a restaurant won’t pass that on immediately as they may have a months worth of beans bought in at the higher price etc.  From this you can gauge two things, inflating drops take time to come through and I dine out in pretty down market restaurants.

Humans are pretty fickle in the main.  When inflation fails to drop as fast as they over-expect they then turn pessimistic because several months data fails to live up to expectations.  Inevitably they get over-pessimistic, analysts get that way too, expecting inflation and interest rates to carry on up higher and longer.  That’s when the inflation ‘beats’ start to happen.  Currently the sentiment seems to be 6% BofE rate nailed on, inflation sticky and slow to fall.  Are investors likely to be disappointed by that view going fwd?  I doubt it.  Could they get as pleasant surprise?  I think quite possibly as price drops feed through to the consumer.

So I am of the opinion we are once again at that sentiment stage we were at in October when I said that was the bottom. It was the bottom then in my opinion and this week has likely made another significantly bottom higher on a chart moving higher overall,  which is why I posted this on Twitter this week.

Take a look at the FTSE250

An oversold RSI at the bottom of the chart and a bounce on a small support. On their own these might not mean a lot and I’m not guaranteeing this is the latest chart bottom but I don’t believe the 250 will re-test the October low so for me there’s less than 8% potential downside from that line.

Now you have to ask yourself what happens if inflation does start to fall sharper?  Interest rates may not go to 6%.  If punters get a whiff of that then I think they will want to leave gilts and fixed interest and pile into equities in my opinion.   

I have notice a lot more director buying over the past week or two – among them this lot

Out of these, the ones to catch my eye are

DLAR – 200k buy from the Chairman after the results

FOXT – Chairman adding on Friday after Nationwide House Price Index rose

LUCE – weeks of director buying ih an update due in two weeks or so.

GRG – CEO and CFO making sizeable purchases a month ahead of results

MARS – multiple director buying over a month or so with a trading update due the end of the month

Out of that list above I hold DLAR, GRG. MARS, AVON, LUCE  as a disclaimer.

Results of this week for me.  TEP and DLAR, both of which I bought into.

Trading updates from CCL was very good and sadly I ignored the shares only to watch them race away.  BOO-REVB spat was like a fly on the wall documentary of some pre-marriage break up spat between two serial cheating lovers. However, for both to be fighting each other so openly in public I think there is obviously something there worth fighting for so I bought a few.  TEP aka Telecom Plus who trade as Utility Warehouse, did a great results webcast with the joint CEOs (something I’m not normally overly keen on) putting on a very confident show with the shares well off the highs – I fancy them for a new high before too long so added more after the update.  DLAR have promised so much for so long.  I bought into them when Vacher became CEO 3+ years ago.  He has failed to deliver so far but the sale of Portals got them out of a truly dreadful contract (dunno how they got out of that) and the director changes since suggests things look good here now for me.  Clive Whiley buying 200k is a very positive indicator imo, although he did buy a load at MTC back in Feb where he is Chair and the recent CEO then walked so it isn’t a guarantee. The commentary at DLAR results is worth reading especially the positive stuff about going concern and trading imo. Also had some GRG as it’s a co I like and a product I love (too much actually) and I was going to buy before the results but the director buy hastened my purchase.

So that’s been my week  - hope you had a good one. Keep an open mind and be a cotrarian, it pays to oppose the crowd imo.

Stay well and remember health is wealth, making money is a side issue for fun.