If the pandemic has taught us anything I think it is that this economic cycle is unlike any others we can point to in history given the uniqueness of how the entire globe has had to react to Covid-19. The investment community tends to try and predict current trajectories with those of prior cycles, and I am no different. In fact, in my latest quarterly letter to clients I pointed out that during the last four recessions S&P companies saw profits fall between 20% and 40% peak to trough. Coupled with near-certain multiple compression, it is easy to see how and why stock prices get walloped during recessionary periods, even if the drops are relatively short-lived in the grand scheme of things.So here … [Read More...]
RIP: Gold
I find it pretty amazing that 2021 did not turn out to be “the year of the gold bug.” You know the long-standing argument for the precious metal; huge deficit spending by the government leads to surging inflation, which in turn leads to a tremendous performance for gold – cementing its place as the dominant inflation hedge. Well, the consumer price index is setting up to exceed +6% for the year, the highest inflation rate in several decades. So let’s pop the champagne for the gold bugs as their bet finally paid off in spades: Oh. Nevermind, I guess. Couldn’t even muster a gain of any kind this year. The nail in the coffin for that strategy, I suppose. Hopefully that moment came a long time … [Read More...]
Is Inflation Really Gone Forever?
Recent movements in asset prices suggest that markets have forsaken any possibility of an inflation outbreak in the next decade. We believe that view is far too sanguine. [Read More...]
Japan: Firing the Third Arrow
Japanese Prime Minister Shinzo Abe’s ability to implement his agenda is politically unfettered. But can he deliver, and will his policies work? We remain cautiously optimistic. [Read More...]
Expect Business as Usual After the German Election
Many pundits believe the German federal election on September 22 will prove a turning point in the sovereign debt-crisis. We are less convinced. [Read More...]
Bank of England’s Growth Focus Might Stir Inflation Ghost
The Bank of England appears to have moved the goalposts. After 30 years of focusing almost exclusively on inflation, monetary policy is now being more explicitly directed toward generating faster growth and lower unemployment. [Read More...]
Patterns of US Economic Recovery Suggest Faster Growth Ahead
Recoveries from past financially driven recessions have tended to be slow, and so far the current US recovery is following that pattern. But abundant liquidity and fading headwinds suggest to us that growth is likely to accelerate. [Read More...]
New Dawn for Peripheral Europe?
When Mario Draghi pledged to do “whatever it takes” to save the euro in July 2012, nobody expected things to change so quickly. Peripheral bond markets have since turned around sharply, supporting the European economic recovery. But can the improvements be sustained after countries exit their bailouts? [Read More...]
China’s Property Market: Policy Is the Real Risk
Concerns about a possible collapse in China’s property market continue to grow. However, our research suggests that fundamentals are more robust than many think. The biggest danger lies in the potential for policy mistakes. [Read More...]
Virtual Annual Meetings and Premature Bankruptcies
A list containing the number of ways this recession is unique is quite long, which is making navigating these waters as an investor much more difficult. While unrelated, below is a brief mention of two that are on my mind.1) Virtual annual meetingsWith in-person annual shareholder meetings cancelled, every investor can now attend meetings online without booking a flight and a hotel. Not all meetings are created equal. Some have long Q&A sessions for shareholders and in-depth slide decks, while others stick to business and offer little in the way of helpful data points for investors. So while it may be a hit and miss activity, for those companies you follow closely and are contemplating adding or shedding shares, look to take advantage … [Read More...]
China Officials Dig in on Stronger RMB
Recent events in China provide yet more support for our view that the renminbi (RMB) will continue to appreciate steadily—and that the country will proceed more rapidly with its reforms than most people expect. [Read More...]
Could Asia Come to the Rescue in a Global Double Dip?
Expansionary policy in Asia helped lead the world out of its slump after the 2008 financial crisis. While the region doesn’t have as much room for manoeuvre as it did then, we think it has ample firepower to deploy if the global economy slides into recession again. [Read More...]
How women can invest more ethically | Letters
We need to think hard about the kind of future our money is going to support through our investments, writes Mary Stevens of Friends of the Earth. Plus a letter from Margaret SquiresYour article on why women need to start investing to exercise more control over their futures (Why finance is a feminist issue, G2, 9 April) contains much sound advice. However, it neglects an important consideration. If, as Emilie Bellet explains, women are “looking more at where we want to be in 10, 20 or 30 years’ time”, then we also need to think hard about the kind of future our money is going to support. Many women – and men – would be horrified to think that the price for their own security is increased uncertainty and instability across … [Read More...]
Greece Gains Some Breathing Space
Today, New Democracy (ND) leader Antonis Samaras will try to form a government. If he succeeds, an immediate disaster scenario will have been avoided. The question is: for how long? [Read More...]
Draghi’s Dilemma: How to Meet Heightened Expectations
European Central Bank Governor Mario Draghi has raised expectations ahead of this week’s ECB Governing Council meeting. [Read More...]
Signs of Topping in the Consumer Credit Cycle
Don’t bother counting me in the camp that thinks they can predict when the next recession will hit. The current consensus from those who try to do such things seems to be sometime in 2020, but I don’t think anybody really knows. But that does not mean that keeping an eye out for economic signals is not worth doing. If the consumer credit cycle, for instance, is nearing a top, it very well may impact what multiple of current earnings you are willing to pay for shares of financial services companies. When you see strong return on equity metrics for full year 2018 this earnings reporting season, you might consider the notion that further expansion could be minimal. (adsbygoogle = window.adsbygoogle || []).push({}); In recent … [Read More...]
What’s Behind the Risk-On/Risk-Off US Economy?
The US economic recovery is progressing in fits and starts. Short-lived “risk-on” periods, when companies and consumers invest more, seem to constantly give way to “risk-off” periods, with anxiety and fear restraining economic activity. [Read More...]
Policymakers Powerless to Stem Capital Flight from Spain
Capital flight from Spain is accelerating. As foreign investors and banks pull massive sums out of the country, policymakers look powerless to stop it. [Read More...]
Weaker Growth Helps Shift Germany’s Approach to Sovereign-Debt Crisis
Recent German data show clearly that the sovereign-debt crisis is starting to bite. This might help explain why the government has given a green light to the European Central Bank’s (ECB’s) new sovereign-bond purchase program. It may also indicate a more lenient approach to Greece—at least for the time being. [Read More...]
Euro-Area Interest Rates: To Zero and Beyond?
There has been some speculation that the European Central Bank (ECB) may soon push its deposit rate into negative territory. [Read More...]