Superior investment results require that you deviate from the norm. In our monthly Absolute Return Letter we discuss key macro topics. Subscribers get it straight to their inbox about 1o times a year.
Investors are not always told the full story before they invest. In this case, we are constantly told that electric vehicles offer the way forward, but evidence is mounting that they are actually polluting more than petrol or diesel cars. The penny just needs to drop as far as our political leadership is concerned.
The Cost of Rising Populism
25% of Europeans vote for a populist now, and rising populism has a devastating impact on GDP growth, as more and more capital is misallocated which is an economic term for capital being deployed unproductively. Rising populism is obviously not the only reason why more and more capital is misallocated, but it is nevertheless an important reason.
Addicted to Oil?
Apart from the 2014-15 supply shock, oil prices have proven to be extremely elastic more recently with only modest changes to either supply or demand having an outsized impact on oil prices. We look into the implications of that and find that oil prices could possibly rise a fair bit further this year even if they are already up 40% year-to-date.
Is Life Expectancy Falling? Really?
Life expectancy has started to decline in some of the world’s most prosperous countries, and there seems to be a powerful link between that and falling real wages. Come to think of it, there is even a link between austerity and falling life expectancy as the Greeks learned in 2010-2012. With ageing of the populace at large, tax revenues will decline in the years to come, which raises the big question: Will life expectancy continue to decline despite numerous medical advances, as society won’t be able to afford the latest, but also the most expensive, treatment forms?
More on the Productivity Conundrum
With the workforce starting to decline in many countries, we need brisk productivity growth for the economy to prosper, but exactly the opposite is happening. Why is that? In this month’s Absolute Return Letter, we take a closer look at a number of negative productivity agents that hold back GDP growth – factors such as excessive healthcare costs, a dysfunctional legal system and a poor infrastructure. Enjoy the read!
Another Zimbabwe in the Offing?
What will central banks do with all the bonds they have acquired through QE? Could it ultimately lead to (much) higher inflation? These and other questions to do with QE will be addressed in this month’s letter. The inflationary impact of QE is essentially, and as central bankers have learned over the years, a function of how various interest rates are managed – particularly short-term rates - which to a large degree define commercial banks’ profits when lending – vis-à-vis how much they earn in interest on their central bank reserves, but much more about that in the letter.
Potential Pitholes of 2019
The January Absolute Return Letter is always about the pitholes one could fall into in the year to come and, lo and behold, financial markets are behaving as if we have already fallen into one. December was a most difficult month, and January hasn’t exactly started with all guns blazing either.
The Art of Defaulting
A debt crisis is looming, but how will it manifest itself? Through inflation, defaults or …? There are many possible outcomes. Even more interestingly, it could also mark the end of the current debt super-cycle, which has been in full swing since 1945. When debt super-cycles end, something dramatic always happens. What will mark the end of this super-cycle? Hopefully not the same as what marked the end of the last debt super-cycle. Enjoy the read.