Comment and opinion for retail investors in the UK
(about 2500 words, 13 minutes or less estimated read time)
I have commented before that September and October are statistically volatile months for equity market investors, so I thought you might want to have some prompts looking at the risks and opportunities that are present or on the horizon as we head into Autumn. The next few headings cover a few of topics that have been worrying me, so to be honest I am not going to be dwelling much on opportunities!
In this article, published slightly early as the facts change so quickly that it might be stale in a few days, I want to follow up on my April mid-month post comment stating that I believe that whatever behavioural factors are driving stock market valuations, in the end fundamental factors will serve to restore prices to levels that make sense in an investment world where owning one sort of asset is always at the opportunity cost of owning another with different risk and return characteristics. In other words, an overvalued asset class will always eventually be sold off to buy into a cheaper one – we just don’t know when that will happen.
What I thought might be useful would be to list out some of the fundamental data that suggest that equity markets have become detached from reality. You can make a judgment as to what, taken all together, this information implies for the immediate future and whether or not those implications would prompt action on your part to defend or enhance your personal wealth.
Possibly only visible to a skilled ornithologist with the best of binoculars, there is not so far offshore a black swan detected.
To cut to the chase, as they say (although I personally deplore the hunting of birds), the potential significant, even catastrophic risk for investors is changes in the Japanese bond market.
Firstly, may I wish all my readers seasonal greetings, hoping that all your Christmas preparations are going well! Most importantly, as most of us are the wrong side of pension age, I wish you the best of ongoing health!
Having written a couple of longish and quite technical pieces last month on AI and ETFs, I am going to offer a more leisurely and shorter read this month! The dive will not be so deep, more of a swim in interesting waters.
That question is:
For most of my working life, I have been able to tell those who asked me that politics made not much immediate difference to investment markets. Of course, where politicians make significant changes to macro-economic conditions (say Reagan and Thatcher in the ‘80s under the influence of the monetarists and market liberalists), there will be impacts over the medium to long term.
However, as a rule markets have always taken the view that in the democratic ‘free’ world, politicians come and go and policies oscillate from a bit leftish to a bit rightish with the odd major annoying upset, like Brexit.
It is also widely understood that the most important capitalist economy, the USA, is really under the control of two main groups – a loose collective of shadowy billionaire oligarchs and the lobbying firms employed by the mega corporations. This was explained to me when I was a teenager attending college to study business and as a Brit, I struggled to believe it, but now there is some evidence (especially during the Boris Johnson period) that the same sort of democratic corrosion is occurring in the UK.
The people with the real power in the USA welcomed Trump’s re-election and the US equity market performed accordingly early this year. Here was a man who was not very bright, had only made money with the help of Russian property developers or by blatantly disreputable behaviour, when left to his own devices went bankrupt over and over again, had an ego that forever needed massaging, and was utterly free of the ethics that most people think define Christian societies.
In essence, they thought that they knew, as the KGB had discovered much earlier, that this was a man whom you could easily manipulate with a little forethought.
That was however their mistake.