E D'S RANT December/Januar y 2019
2019: A tough call Spare a thought for Michael Wilson, as he reads the runes for what looks like a challenging year
The easiest way to make a fund manager wince, I find, is to ask him what his economic predictions are for the coming new year. I’ve been trying to get the perishers to nail their colours to the mast for the last thirty Christmases or so, and I can’t remember very many managers who didn’t stop, cough nervously, and ask me to please make it perfectly clear to the readers that they were only making their guesses in a light-hearted, sporting seasonal spirit, and that their fingers were firmly crossed behind their backs? You can hardly blame the poor devils for trying to stay on the fence this time. A manager who expects a bearish new-year retrenchment is damned if he says so, and damned if he doesn’t. I mean, who’d want to be the exception who missed out on the Christmas surge because he was busy being the harbinger of doom while everybody else was raking in the unexpected seasonal wave or profits? Who’d want to have to tell his boss that the hefty December outflows from his fund were down to his gloomy prognostications? Surely, you might ask, he’d be able to glory in his prescient judgement if January did indeed turn cold on him? Well, thank you very much, but he’d probably rather not take the career risk. You know what they say about tall poppies. Take it from the top Which is why I’ve decided to give the managers a break this year, and to turn my attentions instead to the pure(r) economists and to all the fixed interest experts who tend to keep their noses pressed a little bit closer to the fiscal grindstone than the rest of us. When a 0.5% shift in the yield can turn your bond portfolio upside down, you keep your eyes on the maths and the algorithms, and to hell with fashion or politics or the vagaries of Mr Market. Heck, if I wanted to go just a little further off the wall I’d probably have asked the betting houses, who live or die by their calculations. But maybe that would have been just a small step too far?
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2018 so far…. Last February, IFA Magazine said that the incoming year was a wall of worry. It wasn’t just Trump who was creating pan-global uncertainty, we said – it was also China, the oil price, the Brexit negotiations and a deteriorating situation in the Middle East. We also said that, although corporate profits in America seemed to be on the up, the ten-year Shiller p/e ratio (at around 33.3) didn’t leave very much more room for upside. And that other markets might prove more attractive. Why, we might even have nominated London as a possible beneficiary. We were, of course, wrong. Donald Trump’s $1.6 trillion tax handout was a basically fistful of empty calories, just as we’d predicted, but its effect on America’s economic morale turned out to be outstanding in terms of the confidence it induced. By the mid-autumn the beneficial effect on Wall Street was so great that the dollar economy swiftly sucked all the liquidity out of Asia, Europe – and, yes, Britain. By the fourth week of November, US GDP growth for 2018 was being guesstimated at 2.9%, compared with 2.1% for the Euro area and just 1.3% for the UK. And the S&P had put on 1% against the FTSE’s 9% loss. To which you’d have to add another 6% for the pound’s slide against the mighty dollar. Ouch, that might be mainly because of Brexit, but it still hurts. Things weren’t a whole lot better for the Eurozone, with the FTSE Eurofirst 300 losing 9%, plus another 6% for the euro/dollar slide, and a ghastly 13% fall in the German Dax (plus the euro slide). So much for sneaky Berlin playing unfair against the long-suffering US. And for 2019? Aaah, say the wise heads, that’s where the passive approach comes in. Forget all the active management hype, and sail your boat instead on the rising and falling tides of the market, and keep your eyes firmly on the far distant horizon. It’s also what an IFA would recommend to many of his clients. Pound cost averaging and all that. Sleep easy.
I FAmagazine.com
