Is it just me or does time really have different speeds?
The summer seems to have passed in a flash whilst, Jan, Feb and March dragged endlessly?
Cricket is now over, American Football has started and markets are back in full force after the summer break so Autumn is upon us and I’ve even heard Christmas being mentioned, nooooooooo!
Anyway lots of interesting things have occurred in the last week.
OUI, SI, JA
President of the ECB, Draghi, announced that a limited but still significant stimulus package would be enacted to help bolster the EU trade environment. As we have noted before the German influence on Europe precludes a full blown US style QE programme as they won’t agree it but the new measures are meaningful and about as far as the ECB could go.
What it all means is that Euro interest rates will stay super low, the currency will devalue and the banks will have large lumps of cash to lend out. This is especially good for the peripheral economies and their banks (and why two shares we hold personally, Bank of Ireland and Alpha Bank are up significantly recently).
The Carry Trade mentioned in the title refers to the dual actions of borrowing funds in a low interest rate currency and investing the borrowed funds in a much higher yielding currency.
So now the trade is borrow in Euros and invest in South African Rand, Indian Rupees or the Mexican Peso (the carry yield is the difference between the two).
This is meaningful for the portfolios because we have believed for the last year that the yield on emerging market currencies and debt was very attractive compared to the UK and Europe.
This got derailed for a while when the US announced the tapering of QE as it was assumed this presaged the start of a rising interest rate cycle: people are now realising Europe’s rates are going to be at basement levels for the foreseeable future which is why the EM debt funds in the portfolios are up over 8% in the last six months.
The people’s game
Putin now looks to be more willing to allow a brokered peace in Ukraine; at the beginning of last week the Euro zone started talking of a region-wide boycott of the Russian Football World Cup, a few days later a ceasefire was agreed. Football, the new opiate of the masses and more powerful than food sanctions?!
Lie to us
The US continues to power ahead economically and President Obama continues to be heavily criticised for talking sensibly.
His latest faux pas being that he admitted there was no single plan to defeat ISIS!
The reality is that history is littered with hollow promises to defeat radical and decentralised fighting forces (guerrilla style).
The truth is that it can’t be done without a full invasion and brutal suppression, and even then it’s temporary and hugely costly (financially and physically).
An Afghan chief was interviewed when Russia tried it and he said simply that he knew Russia would ultimately lose, because he would fight forever and do whatever was required to win and they could not.
So President Obama has today said that yes, actually there is now a plan and ISIS will be defeated definitely, absolutely, no question about it.
What we know
So what we have learned in the last seven days is that Football is now a major political weapon and telling people what they want to hear even though any knowledge of history or application of common sense tells you it’s rubbish, is the way forward.
And we wonder why stuff is in a mess!
NOTE: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.