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Hubris is interesting because you get people who are often very clever, very powerful, have achieved great things, and then something goes wrong – they just don’t know when to stop – Margaret MacMillan (Canadian historian and Oxford University Professor). [The following analysis focusses on equities for the sake of brevity, but the points made are equally relevant to Bond Index funds and ETFs].

“It is not the strongest or the most intelligent who will survive, but those who can best manage change.” ― Leon C. Megginson (Business Professor 1991-2010). The price war between asset managers has been fierce in recent years but has been more aggressively fought in the passive arena- as this article noted late last year, Active fees have fallen by less than those of Passive funds, despite starting from a higher base. Like an eye-witness to a major catastrophe, the Active managers appear to be in a state of numbed incomprehension, unable to process what is happening to them. Meanwhile “feemageddon” as it has been dubbed, rolls on relentlessly; Passive funds have taken huge bites out of Active Manager’s assets, as investors wise up to the cost (as well as the returns) differentials.

With the S&P 500 Index having just touched all-time highs and Donald Trump deciding that now is a good time to demand a cut in interest rates by 1% and to re-start QE, contrasting their timidity with that of the Chinese Central Bank, averring that the US economy would go up “like a rocket” if they followed his advice. This would appear to be akin to fighting a fire with gasoline, but that doesn’t mean the Fed won’t do it anyway, (though not this week it seems!)Outside of US markets, however, things are not quite so rosy, as indicated by the fact that the MSCI World Index ex-US Index is nearly 11% below its highs (reached in January 2018), and nearly 20% below its 2007 highs, indicating that, once again, the US is leading the charge higher.

China has become an increasingly important player in the Global economy in recent years. As the economy has grown, its effect on world liquidity has also expanded. In the middle of February, the Bank of China announced that “Total Social Financing” (a metric that includes Renminbi loans to the real economy as well as Shadow Banking credit growth), exploded by a factor of three, to 4.64 trillion Yuan ($685 billion). The amount of outstanding loans in the Chinese financial system is now $30 trillion, more than double the GDP of that country. This has more than offset the declines seen in 2018, suggesting that the Government has once more opened the credit spigot, possibly in response to the economic slowdown caused by the on-going US/China trade dispute.

This guy goes to a psychiatrist and says, “Doc, my brother’s crazy; he thinks he’s a chicken.” And the doctor says, “Well, why don’t you turn him in?” The guy says, “I would, but I need the eggs.” – Woody Allen (Annie Hall).