Markets
Midweek Musings – Spanish Inquisition?
Friday is not mid-week, I know. Apologies if you were wondering why there was no post on Wednesday.
I saw this week a headline in the FT that ran: Investors Should Expect the Unexpected. How absurd.
Most readers will know why nobody expects the Spanish Inquisition. If not, ask Google, Bing or ChatGPT. It’s the meme from 1970’s BBC TV that you want, not 15th century religious history.
However in spite of the FT’s urging, investors cannot expect the unexpected, because if they did, it would have become the expected. You see the difficulty?
I can’t know what the FT wrote about this because I don’t pay their exorbitant subscription, so this is a bit of a rant (with a purpose).
Crystal ball gazing
The better point to make is that the next direction of the market is not often indicated by the easily available headline ‘facts’ or even the current pricing trend.
The next inflection in a given asset market is quite often not at all unexpected to someone who carefully reads relevant news and economic, financial and trading data. Such a person will also have to understand their personal psychological biases and how to resist them.
Furthermore, taking decisions in anticipation of what is going to be called later the ‘unexpected’ , but was in fact something entirely predictable (like say the bursting of the dot com bubble) is difficult because an investor who is sufficiently thorough will always be ahead of the market and will see short term underperformance or even losses (if the foresight prompts purchases rather than sales).
Knowing what is going to happen is not so difficult, but judging the timing is more tricky.
According to the Bible, it took 40 years for the legendary Jewish prophet Jeremiah to be proved right big time. In the meantime he was pretty unpopular. I have no wish to be thrown down a well nor for my readers to wait 40 years to see that I was right all along. I do think however that one can see what the market does not want to acknowldege maybe 6 months to 2 years ahead.
Give us another example, I can hear you thinking!
I already gave one: dotcom stocks in 1999 – I had none in client portfolios built on my recommendations. Another: the collapse of gilt and fixed income prices in early 2022. For now: problems coming out of China and that region.
Those are all worries. On the plus side: current undervaluation of UK shares outside the FTSE 100.
I am not obliged to give FCA risk warnings, being a mere blogger, so will end with a biblical one instead: Beware of false prophets!
I don’t really know the future, of course. I just make an educated assessment and I am wrong at times.
Midweek Musings – Sell in May?
An aside
A quick introductory comment: Some indirect feedback from subscribers makes me think that I have been making these midweek updates too long!
I am going to make them shorter for now although once a month I will write a ‘longer read’ two or three part market commentary and technical explainer.
Sell in May and go away?
All readers know this old stock exchange maxim, I am sure. I have written about it in the past and I think, without doing any actual new research, that over a very long period, it would have proved useful more often than not.
Let’s take a look at 2023 to date by checking returns on the major equity asset markets. I am ignoring fixed income as I don’t think the mantra was intended for that market!
Watching Brief – May 2023
Pottering About
No clear direction, but plenty of pessimism
The push me/pull you tug of war in stock market valuation judgements continues, with the pessimists seeing more central bank rate rises and recessions all over the place and the optimists predicting the end of the monetary tightening and the brakes coming off a little.
Watching Brief – April 2023
Pottering About
Why faff with LTAF?
It is rare that a completely new type of investment asset becomes available to retail investors, but after the FCA has come up with rules following its consultation launched in late 2022, we may be able to access, in a limited way, LTAFs, something that is a new concept in the UK
LTAF stands for Long Term Asset Fund and at the moment only one exists, which is available to institutional investors like pension funds and has been created by Schroders.
Midweek musings – brake system failure warning light flashing
I have already posted that I see a lot of sense in the arguments of those market commentators who say that central banks’ determination to crash the economies of the developed world into recession, even suggesting that stock markets being positive is unhelpful, is the worng strategy because it is manifestly not working and in any case it is policy reaction appropriate to different causes. We have been getting supply side driven inflation and the reaction has been appropriate to demand led.
I saw UK inflation numbers after first publishing this post and that is more evidence of supply side issues (food costs) feeding into the numbers.
A common analogy for the inflationary risks and the chosen policy strategy is of a car accelerating too fast where a bit lighter foot on the throttle might be appropriate but a panic stricken novice driver jams on the brakes very hard. The ‘novice’ driver in this case is the boss of the US Federal Reserve who is after all a lawyer by training and an investment banker with a rather patchy career prior to getting public appointments. Indeed, he could himself be blamed for feeding asset price inflation (now much frowned on by some other central bankers) in the response to Covid-19.
Modern anti-lock braking systems mean that in most situations the car won’t slide across the road when you max out the brakes with your right foot (exactly what happened to me in my first driving test emergency stop) and you get feedback in the form of pedal judder and a flashing light. Very useful when driving down steep hills on snow and ice!
It is now obvious that the failure of SVB and Signature Bank was a combination of inadequate regulation (that being the consequence of over influential lobbying in the USA) and the extremely fast and steep rises in interest rates from a base of virtually zero. You can read many more detailed explanations all over the internet.