Ed's Rant

For Better, For Worse

Where’s 2018 heading? Michael Wilson takes the elephant in the room for a random walk, taking good care not to step on the cracks

So what are we to make of 2018, then? We’re pretty much a quarter of the way through it now but, to answer the question, it rather depends on who you ask.

It’s the looming trade apocalypse that will put an end to a ten year bull run in equities, say some alarmists. It’s the inflationary jolt that spells the end of the low bank rate era, say others – an event which threatens to pitch the entire over-leveraged world into a wave of credit defaults. It’s the tipping point for fixed interest, which is about to suffer the twin humiliations of rising inflation and a fatally undermined high yield corporate sector. And blah blah blah.

Honestly, it must be true, that’s what it says in the financial press, dammit. Warren Buffett says he’s running out of ideas because he can’t find any value

anywhere. Neil Woodford, who has his back foot neatly wedged in the exit door at the moment, is sounding more like Private Frazer from Dad’s Army every week. (“We’re doomed, Captain Mainwaring, doomed.”) And those cyclically adjusted valuations on the S&P 500 are still running at twice their historical averages. The Wall of Worry is there all right, and we’re halfway up it, and the first one to back down loses his performance bonus.

And yet…

Inconveniently, though, this just happens to be the healthiest spell of growth that the world has seen in maybe thirty years. The International Monetary Fund says that global output rose by 3.7% in 2017, and its projections for both this year and next year have just been upgraded to 3.9% - with 6.5% growth expected for developing Asia.

Worldwide commodity markets are stable, and the worldwide cyclical upswing is set to

continue. And with vast amounts of investor cash waiting on the sidelines, it’s a little hard to take some of this doomy talk seriously. Either the right people are reading the wrong reports, or the reports themselves are skewed by their short-term perspective. So which is it to be?

Synthesis, dear boy, synthesis

Well, I’m not sure that I know. But I’ll tell you this much. The 36 years since I joined the Financial Times haven’t been completely wasted. Along the wibbly-wobbly way since before Big Bang, it has been my privilege to collect an entire scrapbook of truisms, and all they really need is for somebody to put them together and give them a bit of a spin, and then the world’s worries will be sorted. No, don’t thank me. But a Nobel economics nomination would be nice.

Let’s start with the value of experience. As everyone knows, those who don’t learn from the mistakes of the past are doomed to repeat them. Except, of course, for those generals who are still trying to fight the battles of the last war, and the economists who correctly predicted 30 of the last 17 recessions, and everyone who thought that the new paradigm was a real thing.

Or shall we look at the market’s behaviour? As Ben Graham told us, Mr Market is illogical and it’s pointless to look for clues from the fundamentals – instead, he said, you just have to take the

opportunities when they present themselves. (That may have been why Mr Graham got wiped out in 1929, of course, but hey, everyone makes mistakes.) Always bearing mind, of course, that Keynes told us that the markets can remain illogical for longer than I can remain insolent. At least, I think that’s what he said?

Not to mention all the black swans, blindfolded chimpanzees and random-walking elephants in the room who have been setting fire to our fevered imaginations over the last thirty years or so. If this is what a trampling herd looks like, I’m going to pack my tranquilliser darts.

But seriously….

integrated accounts and real-time stock and futures trading wasn’t just a flash in the pan, however glitzy it might have seemed.

And nor were the online haulage databases that allowed a trucker from Poland to deliver to Somerset and then nip over to Plymouth to pick up a load that could be exchanged in London for something that needed to go to Berlin. Instead of returning with an empty lorry. It was proper progress. And the only mistake the markets made at the time was to think that the productivity increase from technology could be extended year by year, whereas it was a oneoff step change.