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Results 51–85
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Hiccup of the year?
As we always do in January, this month we focus on the investment minefield laid out in front of us and we argue that with upcoming elections in the Netherlands, France and Germany, and economic uncertainties globally, this year could turn into a rather tricky one for investors. There are reasons to be optimistic, however, and we hope that 2017 will be a prosperous year for you all.
A Lesson in Microeconomics - How to Get the Economy Going Again
There is macroeconomics, and there is microeconomics. Macroeconomics have failed miserably in recent years, and it is time to approach things differently. If you can find ways to stimulate demand more than supplies, you will almost certainly see a re-acceleration in economic growth.
The New Normal, Mk. II
Even if you rarely or never read the Absolute Return Letter, I urge you to read this one. In short, it is about economic growth and why GDP continues to disappoint. I argue that it doesn't, but that we calculate GDP incorrectly. I am not walking away from my long held view that slowing GDP growth is down to adverse demographics, but this clearly also plays a role.
Increase Returns at No Added Risk
We hope you all enjoyed the summer; we certainly did - with a bit of help from Rio. The frustration level amongst investors is rising, as returns on most asset classes continue to disappoint and, in the first Absolute Return Letter of the autumn, we tune in on thinking outside the box. Other than allocating your capital differently, is there anything else you can do to raise overall return levels? The short answer is yes, and that is what this month's letter is about.
Brexit Special: The Empire Strikes Back (wards)
Brexit has taken up a very substantial part of our working day at Absolute Return Partners in the last couple of weeks, and we have had many inquiries about it. As a consequence, we have decided to do a one-off Brexit Special, which we hope you will read, even if you have heard just about enough on Brexit the last few weeks.
Is the Fed Behind the Curve?
This month I have moved my attention to Washington. I am concerned that the Federal Reserve Bank is far too inactive, potentially leading to much more significant inflation down the road. I should stress that our European readers shouldn't worry too much, as the situation is fundamentally different on this side of the Atlantic, but rising U.S. inflation will obviously have at least some effect on European interest rates. Enjoy the read.
Abnormalities in the New Normal
Certain investment dynamics are behaving very differently post the 2008 Global Financial Crisis. Understanding these changes are important as they can provide opportunities for investors. In this month's Absolute Return Letter, we will look at the impact of some of these 'abnormalities' and how investors can profit from them. Enjoy the read.
If Only We Could Blame China
“When you combine ignorance and leverage, you get some pretty interesting results.” Warren Buffett.
One thing we are exceptionally good at in the West is to blame China for pretty much anything that goes haywire. If you believe various commentators, it is all China’s fault that global equity markets have caught a serious cold more recently and, before that, China was blamed for the extraordinary weakness in industrial commodity prices.
A Frail New World
In this month's Absolute Return letter we argue why the long-term outlook for GDP growth and for returns on risk assets is uninspiring. We are often 'accused' of allowing the negative long-term demographic outlook to colour our view on risk assets in general, but in the February letter we argue why the demographic outlook is only one of (at least) four factors, which will hold back GDP growth as well as returns on risk assets in the years to come.
The Biggest Stories of 2016?
Which stories are most likely to clear the front pages of the financial newspapers in 2016? In this month's Absolute Return Letter we take a closer look at that and arrive at the conclusion that three favourites stand out. We discuss all three, and we look at the implications for financial markets, should any of them unfold. Enjoy the read and happy New Year.
Should FIFAA Be Red-Carded?
No, I haven’t gone bonkers – the focus of the Absolute Return Letter has not all of a sudden switched to football. Nor have I lost the ability to spell correctly, although I am sure that there are one or two like-minded readers out there who would also like to see the rear side of Sepp Blatter one final time.
The Real Burden of Low Interest Rates
Almost the entire world is concerned about the high levels of debt, should interest rates begin to rise again, but we are not. Don't get us wrong; a meaningful increase in debt service burdens could do substantial damage to a global economy so loaded with debt. We just don't think it is going to happen.
Economic growth and inflation are likely to stay comparatively low for many years to come, and so are interest rates, but that raises another question. What damage can very low interest rates for an extended period of time actually be expected to do?
Doodles from an Eventful Summer
This month's Absolute Return Letter is a little different. It was a very eventful summer with many incidents impacting financial markets and we have compiled all these topics into one letter. China is, not surprisingly, a core subject. If the Chinese economy is slowing (and it is), we don't think China is in for a hard landing. If anyone is in the near term - and this may surprise you - we think the U.S. and the euro zone are far more likely candidates.
A Return to Fundamentals?
June was a very eventful month, in particular here in Europe. Greece went from bad to worse, and the Greek people have now been asked to vote on their own destiny in a referendum scheduled for Sunday 5 July, which we expect to return in a 'Yes' vote.
However, Greece is not the only subject in the July Absolute Return Letter. Financial markets have in many ways behaved oddly since the near meltdown in 2008. The objective of this month's letter is to look at whether we are finally beginning to see some sort of normalisation - as in a return to the conditions we had prior to 2008...
Are Bond Investors Crying Wolf?
Since we last wrote to you there has been quite a dramatic increase in interest rates in most markets and in Germany in particular. In this letter we look into whether this is the beginning of something much bigger.
For those of you with too little time on your hands we conclude that it is NOT. Economic growth will stay low for many years to come, and central banks have no intention of suddenly flooding the bond market with sell orders.
How to Dress for a Rainy Day
The answer is the Lollapalooza effect. The question you may recall from last month’s Absolute Return Letter - what’s the opposite of a perfect storm, or put another way, what do you call it when an unusual combination of constructive factors creates an outcome which is extraordinarily positive? A reader was kind enough to provide the answer, which was coined by Charles Munger years ago. As a non-American, the answer was at first complete gobbledygook to me, but a quick Google search convinced me that the answer is absolutely legitimate. Thank you.
The 'Perfect Storm'
This month's Absolute Return Letter is about the highly unusual set of circumstances which have underpinned the equity bull market of the last 35 years. Not one of the factors we identify did exceptionally well - they all did and, between them, they created the perfect breeding ground for exceptional equity performance. So far so good.
Unfortunately a reality check is required as it is exceedingly unlikely that those circumstances will be repeated in our lifetime. We should prepare for more modest returns ahead.
Tigers in Africa
This month's Absolute Return Letter is about unrealistic expectations which is something we are all guilty of from time to time. We look at why it is unrealistic to expect equity returns to be in the double digit range over the next several years, why central banks are not printing money like many believe, plus a few other topics.
A Brave New World
In the the last two Absolute Return Letters I have argued why one should expect global GDP growth to be below average over the next decade or so, why interest rates should, as a consequence, remain low and why equity returns should also disappoint. Not as in negative returns but below the levels we have grown accustomed to over the past 30 years. If you have read those two letters, none of this should come as a surprise.
Snail Trail Vortex
The world is undergoing a radical shift towards lower economic growth at the moment. Some of the dynamics driving growth down are structural in nature (e.g. demographics), and even the most extreme monetary or fiscal policy will not change that. We are in for a period of lower, but still positive, global growth whether we like it or not. Despite the somewhat muted outlook, we continue to expect significant regional variations in growth and therefore also in interest rates and equity returns.
Six Months of Nothing
Political problems have escalated over the past seven months. Russia has been aggressive and so have extremists in certain Muslim countries. Having said that, financial markets seem to care about nothing but QE. Despite a growing disconnect in some markets between equity valuations and economic fundamentals, we expect the low interest rate environment to carry the equity bull market for a little longer, but eventually it will end in tears.
A Century of Policy Mistakes
A century ago Argentina ranked as one of the wealthiest countries in world. Today it is a shadow of its former self. A long string of policy errors explain the long slide from riches to rags. Europe, like Argentina 100 years ago, is facing enormous challenges - as well as potential pitfalls - and the management of those challenges will define the welfare path for many years to come. Unfortunately, the early signs are not good. Our political leaders, afraid to face public condemnation, have so far chosen to ignore them.
Absolute Return Letter: Squeaky Bum Time
QE has led to asset price inflation. That much we established in the November Absolute Return Letter. In this months letter we go one step further and look at whether we are now in bubble territory. Considering the strong bull-run we have experienced in 2012-13 it is perhaps surprising to learn that, in a historical context, it is not an outsized rally, nor are equity markets - with the possible exception of the United States - particularly expensive.
Absolute Return Letter: Euthanasia of the economy?
QE has had two noticeable and positive effects. It has saved the world from a financial meltdown not once, but twice, and it has had an overwhelmingly positive impact on asset prices, so in that respect QE has been a success. However, there are growing signs that QE may be beginning to impair economic growth and it may even cause dis-inflation, precisely the opposite of what was widely expected. For these reasons we believe it is time to call it quits and begin to tackle the root problem a banking industry still suffocating from bad loans.
Absolute Return Letter: Heads or tails?
Demographics captivate me. There are around 7.1 billion of us occupying planet earth today, going to 10 billion by 2050. I often think about how good old mother earth will cope with the additional 3 billion people we are projected to produce between now and 2050. More people translate into increased pressure on already scarce resources, but that is only part of the story and a story well covered by now.
Absolute Return Letter: A Case of Broken BRICS?
EM currencies, stocks and bonds have struggled since the Fed signalled its intent to change course in late May. This has seemingly triggered an exodus of speculative capital from emerging markets but, as is always the case, there is more to the story than that. EM countries (ex. China) no longer run a current account surplus with the rest of the world, and this hurts global liquidity. It is not yet a re-run of the 1997-98 Asian crisis, but it has the potential to become one with all sorts of consequences for bond yields in developed markets, currency wars, etc.
Absolute Return Letter: Much Ado about Nothing
A 300 bps rise in bond yields across the term structure would, according to their calculations, do substantial damage to financial institutions balance sheets. Holders of U.S. Treasuries alone would lose in excess of $1 trillion on such a move in rates, equal to 8% of U.S. GDP. Other countries would fare even worse. Losses on JGBs would equal 35% of the Japanese GDP, effectively wiping out its banking industry in the process. Holders of U.K. bonds wouldnt do much better, losing the equivalent of 25% of U.K. GDP.
The Wisdom of Crowds
Are markets efficient? This is a debate that has been on-going for decades. In one corner you have the proponents of the Efficient Markets Hypothesis. In their world alpha does not exist, or at the very least it is not sustainable. In the other corner you have the supporters of behavioural finance who see investors as being mostly irrational and suffering from all sorts of behavioural biases which create alpha opportunities galore. Out of this long lasting stand-off a new paradigm is emerging called the Adaptive Markets Hypothesis which aims to reconcile the two.
Absolute Return Letter: In the Long Run We Are All in Trouble
In the long run we are all dead, said Keynes. Maybe so, but we could be in trouble long before then. Investors appear preoccupied with central bank policy. We argue that investors are quite right in keeping their eye on the ball but, to us, it looks as if they are focusing on the wrong ball. The real worries for the long term are demographics and negative real interest rates and the effect these factors may have on equity returns.
Absolute Return Letter: The Need for Wholesale Change
The seeds of the next crisis have probably already been sown as a consequence of the lax monetary policy currently being pursued. Frustrated with the lack of direction from political leaders, most recently witnessed in the handling of the crisis in Cyprus which was a complete farce, central bankers from around the world are likely to demand change, but politicians will have to be pushed into a corner before they will respond to any such pressure. Hence nothing decisive will happen before the next major crisis erupts.
Absolute Return Letter: Expect the Unexpected
With real interest rates being negative in many countries we expect low returns on both equities and bonds going forward. Many investors have responded to that by allocating more and more of their assets to passive strategies such as ETFs. We believe it is the wrong approach for this type of environment.
Currency War or Something Altogether Different?
"Who is afraid of currency wars?" asks Gavyn Davies in the FT. I have known Gavyn for 25 years and have to confess that he is way out of my league intellectually. He is one of the smartest people I have ever met and, thankfully, also one of the humblest. He rarely gets things wrong so, when I occasionally disagree with him, it always makes me slightly uneasy.
How to Unscramble an Egg
This month we take a closer look at the root problems behind the current crisis. Too often root problems are confused with symptoms and the wrong medicine is prescribed as a result. We identify five root problems, all of which must be addressed before we can, once and for all, leave the problems of the past few years behind us.
Looking for Bubbles
This month's Absolute Return Letter picks up on the question we left hanging in the air back in May - is Asia a potential re-run of Europe? Although policy rates appear to be dangerously low, and thus encouraging further borrowing, Asia has come a long way since 1997 and there is no immediate risk of a financial meltdown. Australian property prices and commodity prices - in particular crude oil prices - are more likely 'credit event' candidates in our opinion.
Results 51–85
of 85 found.
