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.
The Italian Job
Italy suffers from a series of major structural problems that, even with the best of intentions, cannot be corrected anytime soon, and the new Italian government is about to find out that it has landed in the deep end of the pool. The mix of high debts, low productivity, a large shadow economy, bad demographics and the proximity to North Africa makes it almost impossible to govern the country without an open confrontation with the EU and, quite possibly, even a default.
Investor Attention Deficit Disorder – aka the Goldfish Syndrome
There are three key drivers of financial markets – behavioural patterns, cyclical trends and structural trends. Because human attention spans are getting shorter and shorter, behavioural patterns affect financial markets more and more. That is a problem but also an opportunity set for the astute investor who is prepared to think outside-the-box.
The Death of Fossil Fuels? Really?
Oil prices have been remarkably strong more recently, defying our (very) long-term prediction that fossil fuel prices will go to $0. In this month’s Absolute Return Letter, we take a look at the reasons behind the recent strength and where oil prices are likely to go next.
The Inflationary Impact of Ageing
BIS surprised many, when they back in 2015 concluded that ageing is actually inflationary. New research from Oxford Economics have come to precisely the opposite conclusion, which is why I have decided to do a deeper dive on the topic this month. Conclusion? BIS may have been correct in the past but, more recently, my vote would definitely go to the dis-inflationary camp.
An Inflationary Bust Or …?
Events of recent weeks suggest that we have now entered the final stage of the long-running bull market in equities, but what will happen next? An inflationary or a deflationary bust? We argue that, as we see things, the more likely end-game is an inflationary bust, but we do admit that the arguments in favour of a deflationary bust are quite pervasive. Regardless, a bust is next, and a bust is still a bust.
The most hated bull market of all time?
At the end of the day, equity returns are driven by ROE, and we argue in this month’s Absolute Return Letter that ROE is likely to drop as 2018 unfolds, partly due to rising inflationary pressures – particularly wage inflation – and partly due to rising borrowing costs. Perhaps more surprisingly, the new US tax reform could also negatively affect ROE. Continue to read if you want to understand why.
My not so outrageous predictions
Equity markets have enjoyed an exceptionally long spell of rising prices but, as we all know, it won’t go on forever. Here are five reasons why the party may soon be over. Many would probably expect recession to be one of those five, but it isn’t. The economic outlook is simply too good for me to add that to my list of main risks for 2018, but that doesn’t mean equities cannot fall. Enjoy the read.
Live and Let Die
Are you ready to die younger than your parents? It may not be what you want, but for society it is not at all that bad. In the years to come, we will literally drown in healthcare costs, but declining longevity, which is an emerging trend, could just about solve that problem.