Report on Q4 2019

Report on Q4 2019

6 Jan 2020

The last two weeks of 2019 were a good year for equity markets. The immediate cause was of course a decisive majority for the Conservatives and the apparent dispatch of Corbynism to the library shelf marked “Historical Fantasies”, perhaps one day to be studied by students who feel that their knowledge of the Venerable Bede is as complete as it will ever be. From 13 December, the day the results were known, the FTSE 100 rose by 4% to the end of the month, having been down in the quarter up to that point. The star performer in Q4 was the FTSE 250, the most domestically exposed index, which rose by 10%, compared to 2% for the 100 and 3% for the All Share. Year on year, all the indexes were stars due to a meltdown in Q4 2018 which offered a generous comparison. For 2019 as a whole, the FTse 100 was +12%, the 250 + 25% and the All Share +15%. Wow. The US 10 year yield was stable at 1.79%. 10 year gilt yields rallied from 0.55% to 0.74%, perhaps reflecting very small worries about more government borrowing. A year ago when things looked bearish I wrote the following: Here are three really bad things that could happen in 2019 or preferably later. 1) London house prices fall by 20% rapidly or 40% gradually (or both) 2) A major issuer of government debt suffers a catastrophic collapse in confidence or actually defaults (will the person who said “China” see me afterwards?) 3) A neo-Marxist garden gnome becomes Prime Minister of Great Britain. At the time I said that I was bored by politics and Chinese trade wars. On those fronts the noise has remained much the same. Donald Trump is a year closer to re-election, subject to the Democrats deciding to try to defeat him democratically rather than with the law. Climate change activists have got louder and sillier, though following COP 25 in Madrid, at which 27,000 delegates achieved very little, there was some overdue acknowledgement of the tension between the economic demands of poor countries with hundreds of millions of people living in poverty and the schoolgirl demands of...

WHAT’S YOUR PROBLEM?

WHAT’S YOUR PROBLEM?

5 Aug 2019

There seems to be common agreement among first world liberals that we live in unusually difficult times. In my view this a case of “people like us” on steroids. Populism (possibly explained here) has caused great discomfort to people who have grown up feeling pleased with themselves and their kind. Watching them explain their troubles to some of the 29 million people who live in the Dehli region of India, a country with annual GDP per capita of $2,000, would perhaps make great reality TV (note to self – pitch that to someone). But we should resist the temptation to be judgemental if we can (though clearly most of us can’t). Instead I would like to suggest an exercise that can be summed up as “exactly whose problem is this?” When people annoy or upset us we want it to be their problem. We are implicitly saying that they should take responsibility and do something about it. Sometimes, if they ignore us we will get increasingly stressed and suddenly it’s our problem. “YOUR BEHAVIOUR IS UPSETTING ME” It boils down to this: what is the driver of the sentence “Your behaviour is upsetting me”. Is it your behaviour or my being upset? Her are two examples: Malodorous Malcom has a personal hygiene problem. He must be told. Smug Simon and Suzi are blissfully (nauseatingly) in love and don’t seem to want to hang out with any of their old friends. They are starting to alienate people. I think it is pretty clear that Malcolm needs to own the problem, with the support of your helpful advice. If he refuses to acknowledge that no one will stand downwind of him he will soon discover that he loses friends. In the case of the smug lovebirds, it is highly likely that your alienation is a price that they will readily pay in return for the indulgence of their mutual obsession. All you can do is to smile and nod and secretly pray for a traumatic break up. When we are upset we want to blame and we often lose sight of where accountability actually lies. But rational thought can help us decide whether we need to...

Sex and money – we need to talk

Sex and money – we need to talk

10 Mar 2015

Calm down now. This post does not address the alleged aphrodisiac qualities of wealth or any other aspect of paying for sex. It is about taboo subjects. A combination of embarrassment and distaste tends to prevent the discussion of topics that should properly be addressed. Hence our nation’s ludicrous history of sexual secrecy with its toxic residue of unplanned pregnancies, sexually transmitted diseases and child abuse. Absurdly, forty years after homosexuality was legalised in England, the CEO of BP felt it was necessary (in 2007) to go to court to stop himself being “outed”.   You might think that the sexual inclination of a CEO or any employee is of no interest to anyone else. But a judgemental attitude persists in the UK and it motivates people to behave as if work relationships have to be furtive. Indeed, many organisations take this much further and require all relationships between employees to be confessed. The implication is that such behaviour is sinful. It is quite true that good or bad relationships, sexual or otherwise, can influence the way that people behave at work. And it is essential that unwanted sexual attention is prohibited. But this no excuse for prurient gossip dressed up responsible human resource management. A purely practical point is that many single people who work long hours will spend half their waking time in the company of colleagues. It is nonsense to pretend that professional relationships will not merge with personal life. But I have known couples who have gone to extreme and potentially damaging lengths to disguise relationships that started at work. And once the lying starts it is hard to stop. You think that employment law gives protective rights to woman who become pregnant? It doesn’t if they feel that they must retire to protect the identity of the father whom they met at work. I know of a case just like this. In the UK, a similar damaging reluctance accompanies discussion of financial affairs. While a certain restraint is appropriate when discussing both sex and money – as the Facebook generation might find out to its cost – there is nothing shameful about needing either. And need is not greed. It...

OIL…….Something Happened

OIL…….Something Happened

7 Jan 2015

The recent sharp fall in the price of crude oil is one of those rare financial events whose importance is appropriately reflected in press headlines.  Oil has a strong claim to be the world’s most important commodity and also the most political. OPEC was founded in 1960 by the charming quintet of Iraq, Iran, Saudi Arabia, Kuwait and Venezuela. According to its website: “OPEC’s objective is to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.” Were these companies rather than sovereign nations, this would be an illegal price rigging cartel subject to enough lawsuits to employ every lawyer until the end of time. As it is, it’s a legal price rigging cartel that everyone else has to live with if they wish to continue consuming oil. In 1973, OPEC became explicitly political when the US supported Israel in the Arab-Israeli war. It banned exports to the US and the barrel price of crude quadrupled from $3 to $12. It was a shocking inflationary impact that the world did not need. The Iranian revolution in 1979 saw a further leap from $14 to $40. The next great move came in the 21st century as global economic growth was propelled by developing countries such as China and India that became huge importers of oil. The price touched $140 until the financial crisis torpedoed the world economy in 2008 and the price fell right back to the 1979 price of $40. It is worth making a couple of points here. One is that the oil price has shown itself to be very volatile with changes in marginal demand having a huge impact. The other is that, partly thanks to OPEC, the market’s opinion of whether oil is cheap or expensive has largely relied on referencing its own history – the most unsophisticated way of valuing anything. That having been said, it is obvious that oil over $100 makes costly oil supply viable, notably from Canadian oil sands but also from fracking. The world...