Blain's Morning Porridge - Stocks 7% returns - but how?
Blain’s Morning Porridge – April 20th 2017
“You take the red pill, you stay in Wonderland, and I show you how deep the rabbit hole goes....”
7% is the new Really Important BIG number to beat! That’s what global stocks have returned since the start of the year! Wowser.. 7% is a bigger number than 0% bond yields.. but in fact even global bonds have returned nearly 4% as they’ve rallied. And all this positivity despite the rising political uncertainty, worries about the apparently failing US reflation trade, and whether the global economy really is out the woods.
Do remember that returns and yields are very different things…
(Actually, if you want a 7% yield on safe secure assets, then we really should have a chat about a structured secured bond that achieves exactly that yield, and I just happen to have access to… )
My colleague Martin Malone has produced the attached chart highlighting how the rise in global stocks has produced 64% of the rise in financial assets this year. That compares with oil which produced zero returns, but a 1% reduction in the total YTD rise. Interesting, 13% of the total return is attributal to ongoing global QE/Central Bank balance sheet ructions – a point worth considering as the unwind approaches. Central bank balance sheets have grown by $1 trillion – driving the bull bond market!
Martin has also looked at global sectors, and the stand out area is Tech – 22% of global stock value and up 11%. In contrast Energy is 6.5% and down over 8%! The world is changing!
Equally interesting is his snapshot of Hedge Fund returns – the best have returned a mere 2.5% and the Macro theme funds have actually lost dosh. Oh dear.
Meanwhile, bringing us back to the reality of just how much the rosy world of financial assets are buoyant due to the largesse of Central Banks, I am indebted to my colleague Kevin Humphreys on the BGC money markets desk for alterting us to ECB board member Benoit Coeure telling us not to worry yesterday. Coeure told us: “we are very serious about forward guidance… we will be buying financial assets until December or later if necessary, rates will remain low…. The balance of economic risks to Europe is by and large balanced..” and the remarkable: “I don’t personally see risks to the downside anymore.. but I just want to instil a sense of caution here..” Whateva..
If he wants a list of the risks he should be cautious about…
Well perhaps Sunday’s French Election with give us a Macron/Fillon final and we’ll have nothing to worry about.. Then again.. it might not.
Now, changing the topic a bit…
Everyone should be aware of the new MiFID 11 rules to be introduced mid-Summer. They mean intermediaries will have to charge clients for any analysis or advice they provide. How much clients are willing to pay is a moot point - check out: https://www.bloomberg.com/news/articles/2017-04-18/banks-and-clients-tussle-over-what-it-will-cost-to-read-analysts
I must be missing something…
Personally, I can’t see how MiFID II or a raft of regulations that stop people talking to one another creates a more transparent and equal market?
I agree I’m only going to pay for information that puts me ahead of the pack. But, if some investors can afford access to secret thinking (which may influence the price of the asset) then surely that’s a form of insider trading if the same information/thinking isn’t freely available to all?
There is an old rule in Investment Banking: “Information is only valuable if you can withhold it.” It gives the opportunity to profit from those it is with-held from. If “stuff” is happening and only the privileged few that pay for it are aware, then who is going to question it?
Are we likely to see analysts furtively trying to sell their original research and thinking in dark, smoke filled speakeasies… Now there is an idea for a film..
I thought we’d pretty much established Freedom and Access to Information as a right rather than a privilege in this modern age? I was wrong. The inquisition was right.. the Sun revolves around the Earth…
I’ve pretty much managed these past 30 years to ignore most of the nonsense the investment banks pump out. I’ve relied on talking to folk and what I’ve read in annual reports, prospectuses and the smarter papers. (Actually, the truth is probably I’ve been too lazy to read them and too stupid to understand them..) The point is, the “good” ideas and thinking research produces is quickly fed around the market, filtering down the financial food-chain till it reaches us Teenage Scribblers who write daily market commentaries..
Commentaries don’t purport to analyse or advise on investments, but provide a base which may or may not set investors thinking. For instance “stocks went up, down and sideways” is commentary.
The Morning Porridge is such a commentary. I don’t give investment advice or analyse deals – I look at the market and write what I think is happening and try to explain why. I’ve never asked anyone to pay for it – I’m happy that it stimulates dialog with clients, building up the confidence to trade with us here at Mint.
Its my understanding MiFID II won’t change the status of The Porridge as unpaid “commentary”. (But if I suddenly disappear, or the screens go blank, then it means I might have been wrong and my new office will be the darkest dungeon of some financial Lubyanka….. )
Out of time
Fastnet Race Charity: http://www.sail4cancer.org/fastnet-2017-bill-blain
Bill Blain