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What next for the UK?
“Those who are easily shocked should be shocked more often.” ― Mae West I wrote a blog piece 18 months ago, looking at the possibility of Jeremy Corbyn winning the next General Election. It seemed daft at the time, but if recent history has shown us anything, it is that shocks are the new normality. Corbyn has claimed “victory”, (which given the shortfall in Labour seats relative to the Conservatives does raise concerns about the future course of the economy under his leadership), but in truth, it was the Conservatives who “lost it” (in both senses).…
For Whom the Bell Tolls…
“Life is a series of natural and spontaneous changes. Don’t resist them that only creates sorrow. Let reality be reality. Let things flow naturally forward in whatever way they like.” ― Lao Tzu
Skewered by Skewness
“If it’s true that our species is alone in the universe, then I’d have to say the universe aimed rather low and settled for very little.” George Carlin, US Comedian. We posted a tweet recently highlighting one of the major impediments Active Managers face in trying to beat the Markets, namely the impact of “Skewness” in the returns of Index constituents. (The original article is available in the EBI Repository here).
Plus Ca Change…
“He who is not contented with what he has, would not be contented with what he would like to have” – Socrates. Imagine taking your clothes to a Dry Cleaners, only to discover that the moment you hand them over the counter they are no longer yours; the Dry Cleaning company can now lend them on to someone else. As time goes on, the Dry Cleaner becomes less stringent in choosing to whom to lend your Dry Cleaning, even to those who have a history of damaging or failing to return them. Pretty soon, nobody has any idea who “owns” your clothes, such that it is impossible to get them back. Should the original firm sustain losses on these “transactions”, the Government will be on hand to bail them out, however, so they don’t really need to take too much care about their lending processes.
Waiting for Armageddon
“There is man in his entirety, blaming his shoe when his foot is guilty.” ― Samuel Beckett, Waiting for Godot I feel a sense of unease about posting this blog; memories of economist Irving Fisher’s (in)famous quote about stock prices being at “a permanently higher plateau” less than one month before the start of the Great Depression haunts me somewhat. If the Dow is at 15000 in the next two months, you will not see this blog, (or me probably) again… …
Gaining Momentum
Ever since the “discovery of Fama and French’s 3 Factor Model to explain asset price returns, Investors have been seeking to modify and refine this methodology (as apparently 90% explanatory power was not enough!) In 2014, they added Profitability and Investment return but strangely remained silent about the phenomenon of Low Risk (i.e. Volatility) shares outperforming and the documented (since 1993, Jegadeesh and Titman) evidence supporting the inclusion of Momentum as an investment “Factor”. Some Hedge Funds have a whole raft of Momentum funds available, and it is now possible to buy these in ETF form, as both Ishares and Vanguard have launched product…
To the Polls!
“In April, May announces election in June”- tweet from Ivan the K 18/4/17. It is debatable whether the population of Britain really wants this, but we are heading for an Election (the third in two years); With almost perfect comic timing, the IMF announced an upgrade to the UK growth forecast on the same day! The immediate response was a fall in Sterling to $1.2515 followed by a sharp reversal to c.$1.29. Sterling has risen, as opinion polls suggest a Conservative majority of at least 90 seats (and possibly as much as 200). This is what happens when record levels of shorts meet news…
Value versus Growth Redux
“Oft expectation fails, and most oft there, where most it promises”. Shakespeare
Unproductive
We talked about the failure of Global Corporations to invest recently (here), touching on the incentive structure that executives face in deciding whether to do so or not. Today we will discuss one of the major consequences of the lack of investment in new equipment etc. as it pertains to the Western world generally and the UK specifically. The glacial pace of productivity growth and its knock-on effect on living standards is becoming an issue amongst economists and is thus percolating down into politics. Every Minister, it appears, has a plan to close the “Productivity Gap”, but it remains stubbornly apparent. The Guardian blames (predictably) job insecurity, long hours, large pay gaps between staff and bosses, and a