"Without Italy, there is no Europe, but outside of Europe, there is even less Italy." -Mario Draghi
Sri Lanka is in turmoil.
It took me a long, long time to write The End of Indexing.
Gold and silver is money. Everything else is credit.
Is gold the answer?
"Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man." Ronald Reagan
Here at Absolute Return Partners, our portfolio construction is driven by the six structural megatrends that we have identified.
Welcome to the new, slimmer format of the Absolute Return Letter.
This month’s Absolute Return Letter deals with a hyper-sensitive topic.
If you have read the Absolute Return Letter for years, you will be aware that the January letter always stands out from the others.
Wealth has risen excessively in recent years and, now, inflation has started to rise as well. Why those two stories are two sides of the same coin, and why much of the growth in wealth must be confiscated again is what this month’s Absolute Return Letter is about.
"Getting older is fine. There is nothing you can do to stop it so you might as well stay on the bus." John Byrne
Let me begin with a confession. Govcoin is a made-up name.
Why commodity markets have done so exceptionally well
How to structure your portfolio when interest rates are rising.
You know society is in trouble when the Prime Minister of your country stands up and says something along the lines of “of course we can afford to take on more debt – you are old-fashioned if you think otherwise”.
"This pandemic has magnified every existing inequality in our society – like systemic racism, gender inequality, and poverty." Melinda Gates
The UK-EU trade agreement entered into just before Christmas is a 1,200-page monster which contains far more cons than pros for the British economy despite Boris Johnson doing his very best to convince the British public of the opposite. In this month’s Absolute Return Letter, you can see why.
From time to time, readers of the Absolute Return Letter ask for my opinion on this or that and, every now and then, I decide to turn my response into a letter. The last few weeks have been no exception.
Zombies are firms that are neither dead or alive. They are in so much debt that virtually all their free cash is used to service their debt, and that is very damaging to GDP growth. This month, we explain why there are more and more zombies all over the world, and why they do immense damage to the global economy.
We are earlier than usual this month because of the upcoming presidential election. See why a US constitutional crisis could unfold in the days and weeks to come if Trump delivers on his earlier ‘promise’ not to accept the outcome, should he lose on the 3rd November.
Modern Monetary Theory (MMT) is a rather unconventional economic concept – at least if you are a classically trained economist as I am. That said, over the years, I have learned that, every now and then, it pays to think out of the box, so I am willing to take a closer look.
Tina is an old friend of mine, but she is also a sad case of hubris, over-confidence and misguided pride. I first met Tina about 38 years ago but, more recently, I have been reminded of her presence every single day. Sometimes valuations get so much out of whack that I get goose bumps all over, and this is one of those situations.
As if the Coronavirus outbreak wasn’t enough of a problem for society to deal with, shortly afterwards, two American police officers ended the lives of two American civilians. Why that will affect financial markets for a long time to come you can read here.
Wounds heal but scars last. That’s an old lesson from history and will also be the case as far as COVID-19 is concerned. We already know from empirical evidence in China that consumers are in no rush to come back on the streets of the big cities, and why would it be any different elsewhere?
Why is it that a fire on the other side of the planet attracts far more attention than a new innovation about to be rolled out, and how can investors take advantage of that? This is a question more relevant than ever, given the impact of the current Covid-19 outbreak.
The economic costs associated with the coronavirus case outbreak are nothing short of staggering. Expect Q2 to collapse which is not good for equities and not good for bonds either.
Lesson #2: Reversion to the mean occurs because people persuasive enough to make something grow don’t have the kind of personalities that allow them to stop before pushing too far.
Financial hardship often drive people to adopt views that were previously unthinkable. It is a very powerful behavioural pattern and has significant implications for financial markets. In this month’s Absolute Return Letter, we take a closer look at what it really means.
Trump's decision to take out the Islamic Republic's most celebrated military leader, Qassem Soleimani, was a timely reminder that we face many problems. An armed conflict between the US and Iran is clearly one of them but far from the only one. Here is a list of the ones we worry mostly about, going into 2020.
We have reached a stage in the cycle where you need to think out of the box in order to deliver respectable returns. Investing like most of us have done in the great bull market will not deliver returns anywhere near the levels we have enjoyed over the past 35-40 years. This month’s Absolute Return Letter offers a solution.
The evidence is overwhelming that automation has positively impacted total factor productivity (TFP) for years, i.e. GDP growth continues to benefit from the digital revolution despite the fact GDP growth is rather pedestrian these years.
A classic approach to economic theory suggests low GDP growth in the years to come. Why and what to do about it is what this month’s Absolute Return Letter is about. Next month, we’ll look at the impact of advanced robotics – why a rapidly ageing workforce might not be the problem it is often portrayed as. Could robots simply replace humans in the work process?
For years, economists have disagreed whether ageing is inflationary or dis-inflationary. Ever since IMF published a controversial paper in 2015, the debate has raged, but I have finally concluded that ageing is most definitely dis-inflationary (and perhaps even outright deflationary), and here is why.
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.
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.
New rules do not allow us to provide research free of charge any longer. Consequently, our business model is changing.
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.
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 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.
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 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.
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.
Electrification of all transportation and heating is already a trend in motion, and it is going to change everything. The arrival of fusion energy will only make those changes even more dramatic. Commercial banks may cease to exist, fossil fuel prices will fall dramatically - some may even go to zero - and OPEC may be replaced by OLEC - the Organisation of Lithium Exporting Countries.
One of the great conundrums in today’s world is why computers in general and the digital revolution in particular have had exactly the opposite effect on productivity than everybody expected. Why on earth is productivity growth slowing when we all expected it to rise and what can we do about it? That’s what this month’s Absolute Return Letter is about. Enjoy the read.
60% allocated to equities and 40% to bonds has been an extraordinarily successful investment strategy for most of the past 40 years, but I believe the show is now largely over. In this month's Absolute Return Letter, I focus on the 40%, and I argue that, although I don't expect 10-year government bonds to deliver more than 0-2% annual inflation-adjusted returns in the years to come, there are indeed things you can do to earn higher returns.
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.
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.
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.
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.