The recent practice by Central Governments to inflate their economies by injecting capital (QE) has been compared to economic Viagra recently in the financial press. It’s certainly been a huge driver for upward performance over the last 4 or 5 years, and has become the way to reinvigorate otherwise sleepy asset classes.
The quarterly portfolio results are now available and they show gains for the three months of between 6.2 – 7.7%. These are obviously most agreeable and have come primarily from last year’s laggards; Europe, Emerging Markets and Japan.
This cyclicality of performance is one of the portfolio construction’s core principles. Things generally go up and down on an upward long term curve, and the truth is nobody can predict by how much this will happen or when. By acknowledging and accepting this we rather concentrate on identifying the best investments in each area and then making cyclicality our friend by rebalancing annually from the winners to buy more of the losers.
It feels wrong but it works!
Some thoughts on things
I wrote last year on the subject of the Greek election and the potential for considerable turmoil. My conclusion was that it was either going to play out as Kabuki theatre (an orchestrated conclusion) or it really was a game of poker with both sides bluffing furiously to get the other to fold.
It’s still not clear which it is; the Germans are talking tough and the Greeks are saying anything they can think of including renewing demands for Germany to pay WW2 reparations (not likely to endear them to Frau Merkel), all in all it’s messy.
Logically however it’s in nobody’s interests to have Greece leave the Euro:
- Russia is waiting to make a new friend
- The Greek people don’t want an exit
- The U.S. is keen it doesn’t happen
- Nobody knows the economic fallout it will cause but it’s only a question of how bad it will be; there’s no good scenario
It’s not a surprise that the markets doing best are enjoying active central bank assistance; so as mentioned above Japan, Europe and in different ways China, which benefits emerging markets.
We said at the beginning of the year that this would be a reason markets would rise and it has been the case so far.
The U.S. by comparison is flat for the year as the Fed prepares to start raising rates, again it’s not clear when this will begin (June, September or maybe not until 2016) but it’s coming and the market is very much aware it’s looming.
The U.S. Economy is healthy, its employment figures are rising, it has abundant oil and gas supplies, the biotech and computer technology sectors are world leaders and the fall in oil prices has meant households spend less now on heating and petrol, so have more disposable income which increases consumption.
Markets generally discount the future and these are some of the expectations made real that helped U.S. indices be leading performers over the last few years.
Just how important is it as to whether we get an enfeebled Tory administration or a castrated Labour one?
A multi-party coalition looks a certainty as a number of smaller parties in aggregate will hold the balance of power, which is a European model for governing, and unfamiliar to the UK having operated historically on a first past the post, winner takes it all basis.
Something to acknowledge is that the days of big ideas and proposals of fundamental change to how economies / societies are structured and regulated are, for now, a thing of the past.
Margaret Thatcher would be unable to do as she did, as would Wilson or even Blair, and this is probably a good thing. Really the big political and economic arguments are at an end, because:
- Markets have won
- Social benefits have to be in aggregate reduced (as examples the state pension and NHS are unaffordable as they currently exist)
So the parties will now either be socially caring capitalists or fiscally responsible liberals in the larger sense of the word.
The irritation with even a cursory glance to all the campaign propaganda is the fundamental stupidity of the electorate’s wishes and the parties’ responsive pandering.
Electorate: “We want lower taxes but we want more benefits”
(Including better schools, healthcare, help for the aged, higher wages, higher pensions, no increase in retirement ages, stronger military, more police etc etc)
Why won’t a party (for the love of all that’s reality) say?
“You can have one or the other no problem, but it’s simply not possible, is it, think about it for a second, to have both at the same time”
I understand why nobody tells the truth, if the other lot are going to fib and it’s what people want to believe then you’ve got to play along, but it’s a lot of nonsense.
My feelings on the whole thing are summed up by the title to the Country and Western song.
“How can I miss you if you won’t go away?”
View Quarterly Portfolio Update 310315 – click here
View Quarterly Market Update 310315 – click here
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 includes any comment on portfolio construction theory as highlighted under ‘portfolio results’). 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.