Politics

Midweek musings – Santa Rally this year?

23rd November 2022 by Mark Potter Leave a Comment

After a healthy and sustained period of growth from mid October, global equity markets, as recorded by the MSCI World Index fell back a little in the last week, but the chart still has a solid looking recovery on the right hand side. I have suggested that the market has been poised to react to good news for some time and the slightly more dovish tone of central bankers, slowdown in consumption data and weaker employment numbers will all have been taken as leading indicators that the worst of the monetary tightening (ie rising interest rates and the end of QE) is behind us.

In the UK, the Hunt mini-budget brought the expected fiscal tightening (ie tax rises and spending cuts). That was all as expected and indeed, much had been leaked in advance to soften up expectations. UK markets were more fraught about the prognostications for the UK economy from the OBR, the Bank of England (which has certainly well and truly fallen out with the government) and global economic forecasters.

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Watching Brief – November 2022

1st November 2022 by Mark Potter Leave a Comment

Pottering About

I will progress to my observations on markets and the investment climate shortly but I want to start by introducing a slight change in the content of my monthly posts – a subtle refresh, if you like. The Digging Deeper part of this monthly missive has now covered enough topics to form a small reference book and until I have a list of new topics to cover, I am giving it a rest.

Instead, I will return to an idea that long term readers may vaguely recall. This will be headed ‘Hit or myth’ and will each month put a few supposed ‘ facts’ about the economic, financial and investment climate under my quality control spotlight for testing to destruction.

There are many such ‘givens’ recycled through the mass media every day, often referenced by people who ought to know much better – like politicians and the financial or ‘money’ editors of quite serious publications and broadcasters – but some of these accepted truths are in fact imagined or based on what I think are false premises.

Much of my analysis is on offer because of one of the few advantages of being older now, that is having many decades of working in the financial services sector and just as long reading and viewing extensively to try and understand the human condition. Not Harry may not have the supposed (Biblical) advantage of ‘grey haired wisdom’ but that is only for want of raw material!

You may well disagree with some or even all of what I suggest is the reality, as opposed to the myth. The constraints of a blog post mean that I am not able to write a thesis in support of my opinion and in most situations, it does not really matter what I think. The world will carry on as it wants to, of course.

I am only hoping that I can prompt my readers to take a skeptical view of the ‘accepted wisdom’’ and that this will better inform your asset allocations decisions. At times, what I predict is a nonsense does eventually prove to be exactly that (eg valuations of shares like Nikola, ASOS and THG, or the incredible track record of certain Baillie Gifford funds) and people who shared my skepticism may well have benefited in their pockets!

You could not make it up

This heading of course refers to political events in the UK over the last month. If October 1987 gets remembered for Michael Fish and the hurricane that he so confidently dismissed, October 2022 will forever be associated with the name of Liz Truss.

The (predictable, and in fact actually predicted) consequences of the Kamikwasi not a budget mini-budget are now largely behind us, apart from the damage done to the UK’s reputation internationally and the opening of a rip in the relationship between the Treasury and the Bank of England. Apart from enhancing the case for fixed income assets which I had been exploring anyway, I can’t find anything relevant to say about what is now a dead event and we must now await for the proper, normal(ish) Autumn Statement due in a couple of weeks.

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Midweek Musings – Bonds Q&A

11th October 2022 by Mark Potter Leave a Comment

I am pausing my mini-series of posts on selecting bond funds for specific objectives to write about some high level issues, because what has been happening in the fixed income markets recently has been so remarkable that it is being described as a ‘first’ by specialist managers with over 30 years experience.

I will pose and answer some questions but would welcome others from readers with a view to publishing the answers in another post. Please use the comments option or email me if you prefer.

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A cunning plan!?

26th September 2022 by Mark Potter Leave a Comment

I had been writing about the collapse of bond prices and I will continue to expand my series of posts explaining how to research this market as it becomes cheaper and, as I had I thought , hopefully ‘normalises’.

However, I like everyone else (except perhaps the scribblers at the Daily Mail?) have been truly astonished by the ‘not a budget but still called a mini-budget by everyone’ announced by Mr Kwarting.

There had, in the run up, been suggestions by fixed income market dealers that the expected cost of energy price subsidies would strain the gilt market if the associated levels of extra government borrowing were added to the flow of stock into the market from quantative ‘tightening’. But even those pessimists will have been taken aback by the potential impact of what was announced.

Not being rich, NotHarry is rather upset by recent government announcements

But is it just a cunning plan? Maybe the Chancellor knew that Sterling would bomb (he ought to have done) and thinks that will make British Government debt so cheap that overseas (and maybe a few home) investors will buy it up by the truckload? It might well work, if discounts get big enough to make interest payment in feeble Pounds come at a high enough yield to beat those in strong Dollars.

Personally, I think he and his colleagues are backing the theories of a small number of discredited (some 40 years back) academics who have never worked outside of a university. That is a huge gamble.

Now is, disappointingly, not the time to be buying Sterling assets unless you are very brave. They could end up even cheaper. Is it not odd the the UK government has made it that way? Expect some takeover announcements before long as the private equity vultures go scavenging.

Midweek (a)musing – melt down, down under

21st September 2022 by Mark Potter Leave a Comment

I note that the Reserve Bank of Australia, which like most central (state) banks had been buying bonds to support the economy, has reported a loss of about £30 billion on those assets. Now I have said that there would be pain in the bond markers, but that is more than a headache.

The reported comments of the bank’s deputy governor suggest there is talk of the bank being insolvent, but of course his bank, like other state banks, can print money so that would not happen.

If the bank retains the bonds to maturity (the notional loss is based on the collapse in current market value) then the losses may be reduced. In any case, Australians will have to pay in some way: either they will have higher taxes or public service costs, or possibly a higher level of inflation.

As the new UK Chancellor proposes to borrow astronomic amounts of money but does not want his own monitoring body (the OBR) to tell UK citizens what the implications are, there might be reasons to be nervous.

Energy prices skyrocket 🔜 inflation 🔜 recession?

9th March 2022 by Mark Potter Leave a Comment

The headline may represent the main fear being expressed by investors at the moment. Of course, I know that uncertainty about the future, as opposed to specific fears will always be a heavy weight on global stock markets.

It is obvious that as long as the war in Ukraine goes on getting worse and the risk of interaction between Russia and NATO forces is on the table, stock markets are going to keep trending down. I note with some nervousness that some Russian public figures (including incredibly the leader of the Russian Orthodox Church) are rabble rousing for an invasion of the Baltic states and basically anywhere that was once in the USSR. Serious commentators are going into print suggesting that nuclear war is really quite possible.

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