A whole range of news coverage leads one to the inevitable conclusion that we are at a potential inflection point in the long term relationship between what economists call ‘the factors of production’. These factors are usually stated as being land, capital and labour, with enterprise touted as a potential extra when I was at college – possibly because top managers did not like being classified as labour!
Monthly commentary
Midweek musings – I hope you were paying attention
A piece in today’s FT refers to investors suffering the 60/40 blues. It comments that the expected diversification benefit of adding a large chunk of fixed income securities to an equity portfolio just did not work in September and 60/40 porfolio investors suffered from both an equity sell off and rapidly rising gilt yields.
There is more of that today as the market focuses on rising energy prices. It would be a surprise, but not improbable, if the much anticipated end of cycle market sell off was driven by oil and gas prices. People of my age were used to talking about the energy crisis constantly in that late 70s (I had my moped fuel ration book in 1973/4) and we note the re-emergence of those two little words in media coverage.
As I have pointed out before, an increase in bond yields of 1% is not too dramatic if the rise is from 10%, but a rise from 0.5% to 2% is very dramatic for longer maturities. We are now witnessing the process live.
I have been writing for quite a while that owning a general mix of fixed income securities was not necessarily going to be useful in the next part of the global economic cycle. Some bond fund managers (tactical or speciality funds come to mind) may well still be able to offer some volatility control and even make a little money, but index trackers heavy on long dated gilts and US treasuries are going see their performance hammered.
Watching Brief – October 2021
Pottering About
Last month I wrote that this was often the time of year for bumpy markets and I was not wrong for 2021.
Issues that are potential headwinds and which have blown up somewhat more briskly in the last few weeks include:
Midweeek Musings – we’re all doomed
As Private Fraser used to tell Captain Mainwaring…
I read another piece from Noriel Roubini, the academic economist who shares Fraser’s positive oulook, within a few hours of a news item that explained how the UK government had to cover much larger interest payments due to a change in gilt yields. These 2 items fit together.