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ARP Observations

In this section, we provide some thoughts on events and developments that are shaping the world and informing our investment advice and strategies.

Chart of the Moment –
UK Longevity in Decline
With UK longevity in decline since 2011, one can no longer argue it is just a blip on the curve, but what is really going on? Is it a function of lifestyle, or is it a function of the UK government having cut back on NHS – at least in real terms? We are looking into this, as the ramifications are widespread.
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The End of Indexing
A new book authored by Niels Jensen, CIO of Absolute Return Partners
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BofAML’s Bull & Bear Indicator
Following the sudden spike in volatility in late January and early February, many investors expected the change in fortunes to be longer lasting, but markets have been remarkably calm since. In fact, so calm that investor sentiment is now extremely bullish – a classic warning signal that investors should be wary.
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The Mother of All Bubbles?
Over the centuries, many bubbles have played havoc with people’s lives, but rarely – if ever – have we seen a bubble as big as Bitcoin. Having dropped almost 50% from its peak, one wonders whether the meltdown has already commenced? Alternatively, could it possibly be a blip on the curve, only for Bitcoin to go much higher? For what it is the worth, I think Bitcoin will ultimately go to zero, but that doesn’t mean it couldn’t appreciate further in the short term.
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Brexit, our latest view
The latest language in the current round of Brexit negotiations is becoming increasingly emotional, fuelled by nationalist press on both sides. This has made deciphering fact from fiction for the general populous almost impossible. The import/export debate is a case in point. In this latest Observation we highlight some facts worth remembering!
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A short article on Private Lending
Interest rates being at historically low levels for many years has created a problem for institutional and family office investors – where can they find yield once easily obtainable in the corporate and sovereign bond markets? The answer for many has been the private loan markets which have seen huge expansion. We explore more in this short article . . .
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Bond yields vs. the global economic cycle
Bond yields diverging from the economic cycle is a post-crisis phenomenon, and now it is happening again. Will bond yields pick up or is the economy finally slowing?
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Capital Relief Transactions – another tool to improve European bank’s capital ratios.
Regulatory Capital Relief is an investment strategy whereby non-bank investors underwrite losses on portfolios of bank loans, in return for a coupon linked to the bank’s cost of capital.
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Protectionism on the Rise
The EU and US combined have hugely increased the number of protectionist policies in place in recent years. This is not conducive to global growth; in fact it is outright obstructive to it . . .
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Labour’s demographic problem
Demographics will make it increasingly difficult for Labour to gain power in the UK.
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GDP needs (reasonably) cheap energy
Economically, nothing is more important than energy. Industry would die virtually overnight.
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Investment Rules: Pick your moments to be contrarian
Too often investors, in time of success, like to be considered contrarian. It’s the appeal of being a successful maverick, on hindsight.
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US debt levels are in (relatively) good shape
Despite all the negativism towards the US economy and its supposedly vast amounts of debt, the reality is very different. The absolute numbers look big, but that is because the economy is so big. On a relative basis (as % of GDP) the debt problem in the US is small compared to many other economies.
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Investment Rules: Don’t stick to your principles
Having strong principles is a good thing. They are the bedrock and the reference point for any decisions we make. However, they need to be made in relation to the environment in which we operate. As the environment is not a static setting; so too are principles not set in stone.
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Market apathy?
Are equity markets reflecting today’s systemic risks? Proceed with caution . . .
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Gold: Hedge, safe-haven or just a malleable mineral?
Considered undisputed by some as to its allure and perceived intrinsic value, gold has had, and continues to have, a profound impact on economic, cultural and environmental values.
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Confidence Trick
US consumers are feeling rosy right now. Could this be the peak though?
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The Untied Kingdom
Should Scotland's First Minister seek a second referendum, as she now has authority to do, can Scotland afford it?
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Passively active risk
The significant flow of funds from active to passive mandates implies a risk that is not widely understood. Passive equity funds pay no attention whatsoever to valuations.
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Why bother with profit to make money
These days more and more companies – particularly in the U.S. – are run for volume rather than profit.
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Mind the Gap
US Economic Growth - the gap between hope and reality widens
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Year of the Alpha
At Absolute Return Partners we distinguish between four types of risk – beta, alpha, gamma and credit risk. Alpha risk is the contentious one. There is more than one way to think of alpha risk.
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Innovation ≠ Productivity
Today’s innovations are not likely to have nearly the same impact on productivity as, say, the car had on the productivity of our parents.
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Trump Pie
Trump’s promise to the American populace that he can deliver 3.5-4.5% annual GDP growth consistently is a pie in the sky.
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All change at the next nation
With 2017 well underway, one concerning factor stands out above everything else, and that is what is usually classified as growing nationalism. I am not convinced that the true driver is just growing nationalism.
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Does demographics matter to long-term equity returns?
Several studies confirm what we already know intuitively. Middle-aged adults are important drivers of capital market returns.
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Change is coming
Fund managers are going to struggle to perform sudden miracles and deliver outsized returns in the prevailing low return environment. So, it is fees that make a significant difference to the bottom line.
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The Empire Strikes Back(wards) – Now what?
Democracy has been served. Brussels and London (or at least the elite in those cities) have received a slap in the face.