WATCHFUL WAITING

May 2016

SITUATION:        Electrical Products Group Annual Meeting
Annual 3+ day gathering with CEOs of all major U.S. Electrical Equipment companies with an emphasis on informal discussion and strategy. A quiet, wait and see tone.


ACTION:              Watchful Waiting
1. Broad realization we are in a low growth world with 2-4% core growth (closer to 2% really) over the next few years.
2. Software and data driven business models were the topic of the week.
3. Deal appetite high. Lot’s of cash, high prices. Regulatory scrutiny.

The real question was the Presidential Election.  Probability of a Donald Trump Presidency was 0% among East and West Coast investors.

We made it very clear that we thought otherwise, observing the broad groupthink within the entire decision making ecosystem including Wall Street, CEOs, Advisors (Consultants, Law Firms), Asset Managers. Same school, same clubs, same suburbs, same “view.”


THE RESULT:  YUGE “Upset”

  • 90% of institutional asset management is done in geographies that went blue (NY, CT, MA, CA) and had no clue.
  • 80% of institutional asset management will rationalize; possibly 20% might reflect and revise their strategy support processes.

Ramifications discussed in the SEA CHANGE!, the January, 2017 edition of the Industrial Strategist.

 


BREXIT!

June 2016

Middle England Revolt

Middle England Revolt

Post-Brexit Market Rise

Post-Brexit Market Rise

SITUATION:        UK Vote Shocked “Consensus” View
Politicians, Media, Investors, Companies caught flat footed with multiple dire predictions to include:
1. GBP would tank.
2. London would lose its place as a global financial center.
3. Trade barriers would rise with hostile responses from Germany, France, others.
4. EU could break up in entirely.

ACTION:              Brexit – It’s Going to Be Okay
We laid out historical, economical and political realities and stated the following:
1. Aggressive retaliation unlikely. Top export destinations are U.S., Germany, Netherlands, Switzerland and France.
2. London will not lose its financial center. Frankfurt, Paris, Zurich lack cultural ecosystem. Think Hong Kong, Singapore.
3. Minor industrial sector impact.
4. EU break up not likely. Will exist as long as Germany and France want it.

Brexit is a political act that fits Great Britain’s traditional half in, half out “balance of power” approach to Europe going back to at least 1588. England, Wales voted huge to get out.


THE RESULT:      It IS Okay
While long-term effects are in the future, the (20%) drop in GBP drove stronger exports and did not hold the FTSE 100 in check. We also have not seen deeply retaliatory political or commercial responses at least partially owing to spreading political unrest.