Right in Two…
Blackadder: I was under the impression that it’s common maritime practice for a ship to have a crew?Captain Rum: Opinion is divided on the subject. Everyone else says you should-I say you shouldn’t. Blackadder. “Potato” 1986.
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My Name is Bond…
“You expect me to talk Goldfinger?’ “No, Mr Bond, I expect you to die” Goldfinger, 1964.
Deja Vu all over again…
[The events of Tuesday/Wednesday has necessitated a substantial re-write of this blog – once again, markets have been wrong-footed by a massive underestimation of public mood. If it reads as if I am gloating a bit, it is because I most definitely am]. Where’s my boy @JebBush at? Clinton’s and Bush’s finally kicked out of politics. Phillip Taylor tweet 08.48 am. 09/11/16.”They would not listen, they did not know howPerhaps they’ll listen now.”Don McLean – Vincent Before the result on Tuesday, I found the following screenshot – notice anything similar? …
Watch out for the Traps
“Bankers are just like everybody else – except richer. Ogden Nash (US Poet 1902-71).(This post is going to be a little formula heavy. Sorry, I shall return to my usual inanity next week). Since 2009 Central Bankers (via QE etc.) have created a situation whereby all asset prices now have more or less the same expected long-term returns, such that Investors are now indifferent between them. So, Investors have (as was intended), been forced to look for alternative strategies to improve their return outlook. Two such strategies have emerged: the “reach for yield”, namely the buying of High Yield equities on the one hand, whilst others have focused on “Value”, to wit, the purchase of assets that are relatively cheap compared to their respective alternatives. Both contain some assumption flaws, which we will look at in turn.
Money for Nothing (and your risk for free)
“Most people would sooner die than think; in fact, they do so.” ― Bertrand Russell (UK writer, historian).Steve Forbes (of Forbes magazine fame) once said (apparently) that you make more selling advice than following it. “It’s one of the things we count on in our business, along with the short memory of our readers”. An article I recently read (in Forbes, ironically), suggests that this continues to be the case. It once again takes the line that there are alternatives to Indexing, and that Dividend investing is the answer. Let’s look under the bonnet to see how it arrives at its conclusion.
Hating the Dollar
“Historically, the claim of consensus has been the first refuge of scoundrels; it is a way to avoid debate by claiming that the matter is already settled” – Michael Crichton Without much fanfare, last month the IMF announced that it would be including the Chinese Renminbi in its SDR (Special Drawing Rights) currency basket for the first time, in doing so adding a fifth currency to the mix. It is the confirmation of the rise to global status of the Chinese economy (and by extension, the rise of Chinese political power), and has been hailed by them as them arriving on the world stage.As shown below, the SDR has been falling versus the US Dollar over the last 2-3 years, prior to the Renminbi’s inclusion.
Europe- the Final Countdown?
“Once a barrel of lit matches rolls into a field of dynamite sticks, you don’t try to predict which one will explode; you just get the heck out of there”- John Hussman (US Portfolio Manager). Sterling’s immolation has taken centre stage again this week, but behind the scenes, after a long lull, problems in Europe are starting to re-appear. Both political and economic issues, long avoided, have come home to roost, putting the prospect of full-scale crisis back on the agenda. Let us count the ways…
Sterling “Flash Crashes”
In the early hours of Friday morning, Sterling fell from $1.26 to $1.18 in five minutes. It had already fallen from $1.295 at the start of the week, as “Investors” (1) took fright at Theresa May’s weekend comments about a “Hard Brexit”, suggesting that we might actually leave the EU (Shock,horror). The post- mortem has already begun, but it likely that we will never find out the real reasons behind the fall; so conspiracy theories will no doubt fill the void, especially as, unlike the Swiss Franc crash on January 2015, there doesn’t appear to be any “news” associated with last night’s carnage.
Structured to Fail…
The hypocrisy of some is that we like to think of ourselves as sophisticated and evolved, but we’re still also driven by primal urges like greed and power- Michael Leunig (Australian Cartoonist and Poet). [This posting serves as an adjunct to the latest Wendy Cook article, posted on Tuesday, regarding Structured CD’s in the US. What follows is a more UK-centric version of same].—Last week an adviser asked me about a new Structured Product a client had shown him. My first reaction was to rubbish it. However, I felt duty-bound to delve deeper into it. What I found made me wonder whether I had under-reacted! What I want to show today is not only how bad these sorts of things are for Investors, but how these firms make money on them (at the investor’s expense). Indeed, given access to these markets, investors could actually construct these products for themselves.
Timing is(n’t) everything
“Stocks have reached what looks like a permanently high plateau.” – Irving Fisher, (economist), 3 days before the 1929 market crash. We have covered this subject before (here, and in our Quarterly Review of Q2 2015), but it is always worth returning to, as Investors appear unable to shake off the conviction that they can “beat” the market. Passive inflows (and Active outflows) suggest the tide is turning, but as all politicians feel obliged to say nowadays, there is still much to do. It is gratifying to know that the ranks of Index investors are rising (through EBI, but others too), and that we are no longer the geeks at the party that no-one wants to talk to.