Market Commentary

A fanatic is one who can’t change his mind and won’t change the subject. – Winston Churchill OK, I know I have covered this before (here), but in the cacophony of market forecasts arising from the brokerage industry, and dutifully repeated by the financial media, I feel the need to purge myself of the temptation to listen to them. (This may be a form of therapy – bear with me.)…

The new year has not started brightly – geopolitics in the Middle East, literal rumblings in North Korea and the chaos in Chinese asset markets has put equities on the back foot. The real concerns, however, may lie elsewhere.

[The title of this blog is penned with apologies to Edwin Lefevre, the writer of what is possibly the greatest book on the stock market ever written] In February next year, I shall have worked in stock markets in various guises for 29 years, and will have to up-date the bio below. In the meantime, in what will be our last blog of 2015, I shall attempt to describe the similarities that have endured and the differences that have emerged in that period. It is by no means exhaustive, merely a personal account of what it was, and is, like to work in the City of London.

Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price

ZIRP- Another Japanese innovation, this time from the Bank of Japan, whose aim was to stimulate the Japanese economy by having a Zero Interest Rate Policy: so far (15 years and counting), it has had an extremely limited effect. NIRP- A variation on the above theme, whereby Central Banks (particularly the ECB, but not limited to them ) employ a strategy of Negative Interest Rate policy: the likely economic result will be much the same.

Some debts are fun when you are acquiring them, but none are fun when you set about retiring them. – Ogden Nash This week we shall focus on a number of (partially) related stories in lieu of a major theme. The common denominator is debt – how companies, states and even countries deal with the issue will shape the economic landscape for years to come.…

In the wake of the Fed’s non-decision on Interest rates last week, the markets have remained highly volatile and there are now questions being raised about the Fed itself. As Vanguard’s Chief US economist put it, “we are concerned with the Fed’s acknowledgement of recent market volatility in its decision. The Fed runs the risk of being held captive to the markets as, paradoxically, much of that volatility is due to the anticipation and uncertainty around when the Fed will move”.

There is always an easy solution to every human problem — neat, plausible, and wrong. – H.L Mencken (writer, 1880-1956) Declines in markets over the past three months have, as usual, led to an inquest into what went “wrong”, conveniently ignoring the reality that losses go with the territory, and at around 10% is no more than a run of the mill correction. Some suspects have been hauled up in front of the court of public opinion: Hedge funds (a usual suspect if there was one), Factor investing in general (smart beta, alternative beta etc.), and risk parity in particular. Hedge funds can be (partly) absolved of this charge. Losses, whilst large in some cases, were not generalised, and they may well not have been the catalyst for the chaos, but merely caught up in it all.