The Experts

Charlie Aitken
+ About Charlie Aitken
Charlie Aitken is founder and fund manager of Aitken Investment Management.

2019: All about The Fed & Beijing

Monday, March 25, 2019

In equities, commodities, bonds and currencies, 2019 has all been about The Fed and Beijing reversing policy. Both have done 180° turns on their 2018 policies.

At the conclusion of the March FOMC meeting last night, Jerome Powell provided two more dovish surprises (to go with the now infamous Powell Pivot delivered at the January FOMC statement). Firstly, the median dots now indicate zero rate hikes in 2019 (down from two previously). Secondly, the pace of the balance sheet reduction (colloquially referred to as QT) will slow in May and end completely in September. Specifically, the cap on Treasury run-off will shrink from $30 billion a month to $15 billion a month in May and Fed balance sheet reduction will be halted at the end of September. These changes make it quite likely that the Fed is done with tightening for this cycle. In simple terms, the next move in US cash rates is likely down and QT is ending.

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“If it ain’t Boeing, I’m not going.”

Friday, February 22, 2019

The Boeing Co. (BA.US) remains one of our core investments. Today I thought you might find useful an update on Boeing post the release of its Q4 results and 2019 guidance.

I am one of three brothers, and most Sundays in our childhood Dad would pack us all in the car and take us for a drive to see or do something interesting. This was clearly to give Mum a well-deserved break from us for a few hours.

Many Sunday’s we would decide to head out to Sydney Kingsford Smith Airport. If we went in the early afternoon, we knew we would get plenty of action as that was when the international flights started departing. There was nothing we enjoyed more than watching a Qantas B 747, “the Queen of the skies” take off fully loaded on runway 34-L. It was a phenomenal display of engineering and raw power. I’ve actually continued the tradition, occasionally taking my own young children out to “Shep’s Mound” at Sydney Airport (SYD.ASX) to watch the action.

Clearly, the airplane manufacturing sector is a classic duopoly between Boeing (BA.US) and Airbus (AIR.FP). This is an excellent industry structure, with extremely wide moats restricting another genuine competitor entering. A classic duopoly in a structural growth sector will lead to high levels of economic rent being extracted by the duopoly players, in what is becoming an extended “super cycle” for next-generation plane demand. Boeing estimates 42,730 new commercial planes will be required over the next 20 years.

While there’s a clear argument for holding both aircraft manufacturing players, we believe the outlook for Boeing is superior to Airbus. We also think the potential disruption to supply chains in Europe around a possible “hard Brexit” is another reason to favour Boeing over Airbus in the short-term term. Boeing’s Q4 result and 2019 guidance further confirmed our conviction in Boeing as a core investment for the fund. Let me explain why.

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