Everyone has a plan ‘til they get punched in the mouth.– Mike Tyson
Analysts have got off to an inauspicious start in 2016: "The current stock market level is disconcertingly well below not just the Wall Street forecasts for 2016 (made a couple months ago), but also below those made for 2015... or for even 2014!" (via Zero Hedge).
All investors, including those in EBI Portfolios, have taken a bit of a beating recently. Nearly everything has fallen sharply in the last six weeks, and equity market correlations are once again approaching one, as the table below highlights. …
The last month or so has seen a gut-wrenching fall in oil prices (and most asset prices in general). Declines so far have been (relatively) orderly - a 5% move for oil for example is par for the course - but some strange things have been happening in ETFs and ETNs . They should trade at fair value - that is, at a zero premium to the value of their assets. If they didn't, there would be an opportunity for risk-free profits (known as arbitrage). But, as this Barron's article relates, this has not been happening.
First, let's remind ourselves what an ETF is and what it does…
Value Investors have had a hard time in recent years - what was cheap has remained so for what seems like an age. Does it still exist, or like the Betamax, Walkmans and the Lib Dems has it become a relic of a bygone era?
A fanatic is one who can't change his mind and won't change the subject.– Winston Churchill
OK, I know I have covered this before (here), but in the cacophony of market forecasts arising from the brokerage industry, and dutifully repeated by the financial media, I feel the need to purge myself of the temptation to listen to them. (This may be a form of therapy - bear with me.)…
The new year has not started brightly - geopolitics in the Middle East, literal rumblings in North Korea and the chaos in Chinese asset markets has put equities on the back foot. The real concerns, however, may lie elsewhere.
[The title of this blog is penned with apologies to Edwin Lefevre, the writer of what is possibly the greatest book on the stock market ever written]
In February next year, I shall have worked in stock markets in various guises for 29 years, and will have to up-date the bio below. In the meantime, in what will be our last blog of 2015, I shall attempt to describe the similarities that have endured and the differences that have emerged in that period. It is by no means exhaustive, merely a personal account of what it was, and is, like to work in the City of London.
Contrarian Investing is an investment strategy that is characterized by purchasing and selling in contrast to the prevailing sentiment of the time.
Events in Europe appear to be moving in a decidedly dangerous direction. The initial huge sympathy for the migrants has given way to concern (and in some cases alarm) amongst the local populations. From welcoming refugees unconditionally a few weeks ago, Angela Merkel has changed tack, limiting their "rights" and preventing further inflows (as far as possible). This puts them on a par with the likes of Hungary, Croatia, Slovenia and others who are actively seeking to offload the problem to others. Meanwhile the EU itself, according to the Washington Post, predicts<
ZIRP- Another Japanese innovation, this time from the Bank of Japan, whose aim was to stimulate the Japanese economy by having a Zero Interest Rate Policy: so far (15 years and counting), it has had an extremely limited effect.
NIRP- A variation on the above theme, whereby Central Banks (particularly the ECB, but not limited to them ) employ a strategy of Negative Interest Rate policy: the likely economic result will be much the same.
The future depends on what you do today.– Mahatma Gandhi
There has been much talk recently about "Sequence Risk" (a more detailed description of the opposing views can be found here and here ), as both sides ponder the Safe Withdrawal Rate (SWR) for retiring investors, and the effect of market returns on Retirement Pot longevity. …
Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.– Ogden Nash
This week we shall focus on a number of (partially) related stories in lieu of a major theme. The common denominator is debt - how companies, states and even countries deal with the issue will shape the economic landscape for years to come.…
Only when the tide goes out do you discover who's been swimming naked.
In the wake of the Fed's non-decision on Interest rates last week, the markets have remained highly volatile and there are now questions being raised about the Fed itself.
As Vanguard's Chief US economist put it, "we are concerned with the Fed's acknowledgement of recent market volatility in its decision. The Fed runs the risk of being held captive to the markets as, paradoxically, much of that volatility is due to the anticipation and uncertainty around when the Fed will move".
[The following is NOT a forecast - according to some bookies, Corbyn has only a 14% chance of being the next Prime Minister. What follows is an unlikely potential scenario which would have a high impact on markets - a so-called Black Swan event]
There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know.– Donald Rumsfeld
Black Swan: An outlier event, with an extreme impact…
There is always an easy solution to every human problem — neat, plausible, and wrong.– H.L Mencken (writer, 1880-1956)
Declines in markets over the past three months have, as usual, led to an inquest into what went "wrong", conveniently ignoring the reality that losses go with the territory, and at around 10% is no more than a run of the mill correction. Some suspects have been hauled up in front of the court of public opinion: Hedge funds (a usual suspect if there was one), Factor investing in general (smart beta, alternative beta etc.), and risk parity in particular.
Hedge funds can be (partly) absolved of this charge. Losses, whilst large in some cases, were not generalised, and they may well not have been the catalyst for the chaos, but merely caught up in it all.
It hasn't been a great period for all things Emerging recently.
Predictably, analysts have turned negative co-incidental with the market falls. EPS forecasts have collapsed as this chart shows.
As this article points out, however, that is a bullish sign for investors. Warren Buffet is often quoted as saying, "Be fearful when others are greedy, and greedy when others are fearful", and this may be one of those moments. Meanwhile, aggregate Developed Market Bond and Stock valuations are at their highest level of all time, according to Deutsche Bank.
You're not really diversified if you don't hate something in your portfolio at the moment.– A Wealth of Common Sense, Ben Carlson 1/9/2015
Would you want to buy this market? We think that it can make sense…
One of the most important tasks in Long Term Investment is that of maintaining one's asset allocation. Once a risk tolerance level has been set, one invests in a portfolio of assets, but that Portfolio will "drift" over time as the investments will generate differing returns. If stocks outperform bonds, for example, an original 60/40 (e.g. EBI 60) could morph into EBI 75 or even higher, which may be above the clients risk tolerance. The Tech bubble and subsequent crash will have pushed the Portfolio weighting above (and then below!) the client's true risk level…
[This post is intended to try to explain current market trends and what it means looking forward. As Yogi Berra said, "its tough to make predictions, especially about the future", so we won't try. But, we can try to understand what is causing this huge shift in investor sentiment, as it may help us withstand whatever lies ahead. The views expressed are my own.]