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Au Contraire Blackadder...

Au Contraire Blackadder…

Just as with Carlsberg, we don’t do predictions at EBI, but if we did they would probably be the best in the World… I am sure you have already had your fill of predictions for 2017, but just in case you haven’t here are some more, but with a slight twist – these are the opposite of the consensus view, taken precisely because of that fact. Call it a control experiment – how right can one be simply by saying the opposite of the pundits? We shall check back in approximately 350 days… 2016 was a normal year in most senses – pundits got it wrong, as usual, but this time the magnitude of failure was spectacularly large: not just the puditocracy though. As the screenshot below shows the Bookies got it badly wrong too, and it cost them real money.

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Party like it's 1999

Party like it’s 1999

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one… Truth, when discovered, comes upon most of us like an intruder, and meets the intruder’s welcome… Nations, like individuals, cannot become desperate gamblers with impunity” Charles MacKay, Extraordinary Popular Delusions and The Madness of Crowds, 1841 Since the victory of Donald Trump, (equity) markets have been on a tear: there appears to be nothing to stop them, as optimism abounds. But there are some strange reminders of a past era, one that didn’t end well for Investors. Will history repeat – does it have to?

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Concentrate - this may get tricky

Concentrate – this may get tricky

“This too shall pass” – medieval Persian poetical saying. The Big Money (Sovereign Wealth Funds, Global Pension money etc.) invests primarily on the basis of Currency – they first select the currency they wish to invest in and THEN the asset class that they prefer, according to their risk tolerance… It is the ebb and flow of this gigantic amount of money that creates Capital Account surpluses and deficits, which in turn can move interest rates and thus currency values themselves, in a feedback loop. Global Capital moves to where they feel safest, and at times they all seem to agree on a preferred course of action – this may be one of those times.

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2016 - Another quiet year...

2016 – Another quiet year…

“We have long felt that the only value of (stock) forecasters is to make fortune-tellers look good.” Warren Buffett. There are lots of predictions out there already for 2017. In order to have a fighting chance of being right, I will focus on 2016 and look at the events that shaped what turned out to be an “interesting” (in the “Chinese” sense of the word) year. In no particular chronological order, the “main events” appeared to wrong foot all and sundry – It was not a good year to be a pundit.

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Oil: on the Skids?

Oil: on the Skids?

“People who think they know everything are a great annoyance to those of us who do”. Isaac Asimov We return to the subject of Oil. The recently agreed OPEC deal to freeze output has finally stopped the rot, pushing prices back up above the $50 per barrel level, to much relief all round (the Saudi’s, Russia and US Shale producers all stand to benefit handsomely from this development – it may even allow Venezuela to survive another year!). The chart below shows the extent of the gains since the low point of January/February 2016. The question is now about its duration – can the deal stick, or will the cartel resume its policy of benign neglect, leading once again to over-production and falling prices.

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The value of Value

The value of Value

“Price is what you pay. Value is what you get.” – Warren Buffet. [All returns are quoted in US Dollars, to avoid the currency effects of Brexit on Sterling returns. The basic premise, however, is not changed by the base currency choice as currencies tend to be correlated with the economic cycle, whereas the Value (and Size) premium is understood to be independent thereof. I have used the MSCI World Index, as a global equity proxy. Essentially the same situation pertains throughout the regions of the world and especially so in the UK].

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Deja Vu all over again...

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? …

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Watch out for the Traps

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.

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