Well, welcome to 2016 and markets in a collective tizzy.
Investing can indeed sometimes feel like putting money into a business like Atheists.com and then realising it won’t work because it’s not for prophet.
Meeting clever people
We spent several days in London last week meeting analysts and fund managers all of whom had interesting things to say.
The most perceptive macro views were from Chris Taylor whose brain is as big as his political correctness filter is not. The two main points he made (both of which make sense to us) were:
- The historic growth rates achieved by economies following a recession were far stronger (around 4% p.a.) than the 2+% we have experienced over the last few years and this has led many to question whether strong growth will return. He argues that history must be viewed as a guide not a map and the big difference now is that banks aren’t lending as much which means the operational leverage of companies is lower (they are also using excess profits to buy back shares not invest as heavily) and this has slowed everything down. This is only part of the story however, if the historic economic cycle is around 7 years including 3 years at 4% growth then 2% growth will likely extend the cycle out to 10 years plus, effectively it’s lower but for longer; the Goldilocks scenario of economies neither being too hot or too cold but just about right.
- Oil works off a multiple of gas prices averaging a multiple of 8 times more per unit of energy. As gas prices have plummeted due to fracking so the oil price has been pulled down. The Saudis however are less concerned than many other producers as they have large refining capability and the profits and margins on “cracking” oil into its different elements has remained strong. A big issue with falling incomes for oil producing nations is that to fund their large domestic social programmes with less money coming in, forces big liquidation from their Sovereign Wealth Funds. These are massive holders of bonds and equities and Chris was aware of sales in the region of £75billion in August 2015 which was the last big market dip. This is likely happening again in early 2016 and is an element of the inability of markets to bounce, the playbook of the last five years “buy the dips” has been for now replaced by a new strategy “sell the rips”. This too shall pass.
The most famous American Football Coach is Vince Lombardi, the trophy for the Super Bowl winners is named after him.
He was famous for shouting at his players when he saw something he disapproved of on the field.
“What the hell’s going on out there?”
The continued campaign of Donald Trump is a phenomena where exactly the same question should be shouted.
As much as George “W” was a recent disaster we are talking about the most important single job in the world, held with distinction by such greats as Roosevelt, Jefferson, Truman and the greatest of them all, Abe Lincoln.
It is frankly an abomination that this cretinous, xenophobic, mysogynistic, economically illiterate blowhard is being allowed to spout his poisonous populist garbage seemingly unchecked by the collective voices of reason and sense.
He is known as “The Donald” but should be known as “The Centaur”.
Half man, half total horses ass.
Tug of War
I was reading “Blink” by Malcolm Gladwell and one chapter dealt with how human relationships change over time.
The early rose tinted glasses through which actions are viewed can in time turn to a brown filter with commensurately disastrous results.
The prism through which we process things is a key element to the emotions then produced.
If they are rosy the beloved family dog eating the sofa is viewed as naughty but adorable, if already brown it’s really not.
This is the same with market sentiment.
Yes there are areas of concern about which we have talked recently, but there are areas on which to be positive as well.
There is global growth.
Unemployment is low and falling.
Wages are rising.
Banks are rock solid.
The drop in oil prices is like a tax cut for most business and households.
Consumer spending is rising faster year over year.
There is plenty of liquidity in financial systems.
China has doubled its economy in the last 8-9 years, 6% growth today is 12plus% growth in 2006/7.
So all in all its fair to say that markets have some very brown hued glasses on right now but.
That too shall pass!
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.