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Diary of a fund manager - WOBEGON AUGUST - 27.08.2019

David Miller, Investment Director, Quilter Cheviot

The August lull continues, but under the surface there is a lot going on. News from elite gatherings in Jackson Hole and Biarritz, the unpredictability of the leader of the free world and more about the economic slowdown both in theory and practice. All framed by Garrison Keillor’s fictional town in central Minnesota.

Well it’s been a quiet week in Lake Wobegon. President Trump tried to buy Greenland, the German government failed to raise as much money as it wanted by selling 30 year bonds at a negative yield of 0.1% and the Brexit countdown was undisturbed by the Prime Minister’s meaningless meetings in Berlin and Paris. Two gatherings of the powerful competed for attention in the information vacuum. In Jackson Hole, Wyoming, central bankers met for informal discussions about the challenges they face and in Biarritz the leaders of the G7; the United States, Japan, Germany, France, Italy, Canada and the United Kingdom met for purposes unknown. The main news from the bankers came from the Fed Chairman who guided us towards a further 0.25% reduction in US interest rates in September which seems reasonable even though the minutes of the last formal Fed meeting showed that there are widely differing opinions about the need for and effectiveness of lower rates. The Presidential tweet that followed was predictably hostile. The G7 final communique was particularly insipid reflecting how difficult it must have been for the six and the US to agree about anything substantial.

Investors took most of this in their stride, but then towards the end of the week something unexpected happened. China announced further tariffs rather than waiting for the US to lead, provoking an extraordinary presidential tweet tirade that not only classified President Xi as an enemy of the US, but also instructed US companies to find countries other than China to do business with. There is a growing sense that dealing with President Trump, whether friend, foe or simply trying to keep out of the way, is next to impossible. Respectable US based commentators are writing extraordinary things about his trustworthiness amongst other things. It would be wrong to suggest that this is anything other than worrying even though the bare statistics for the trading week showed that equities were down only slightly, bonds unchanged and the dollar least favoured currency. Sterling ended slightly stronger against the euro.

The recession or just a slowdown debate continues, but at the margin the duck is quacking just a bit more stridently. To remind you of the quote; ‘if it looks like a duck, swims like a duck and quacks like a duck, then it probably is a duck.’ The US economy is growing at 1.5% compared to 2.5% a year ago which might not sound that serious, but is the equivalent of the loss of the economic output of New Zealand. Europe is stagnating and that’s before Brexit which, whatever your views, isn’t good for short term confidence. Asia is also slowing.

News from the real world has been sporadic. In the UK, some evidence from the countryside that the residential property market is stirring after a very quiet period. People do eventually get tired of waiting for certainty and when buyers meet sellers at realistic prices, deals are done. Then from South West France, apart from the G7 bubble, rural depopulation continues, shops are closing and the Paris government is disliked. Local authorities are running out of money and when the holidays are over more disruption is expected. There seem to be few places at present where the grass is definitely greener. My week was also on the quiet side, although punctuated by moments of takeover and tweet inspired action. Companies continue to buy and sell each, particularly those with strong currencies looking for UK ‘diamonds in the rough’ and investors continue to invest. In a zero interest rate world finding growth remains the priority. Patience, liquidity, diversification with an overlay of scepticism is easier said than done.

And so to the British weather that at the moment is more volatile than markets. Last week was my annual open water quarter mile swimming race which this year was in the Serpentine. What better thing to do on a summer evening except that swimming into a gale is hard work and the only good news about an air temperature of 15 degrees and rain was that it made the water feel warm. A few days later it was back to 30 degrees and perfect summer evenings. Timing and luck also matter.

Garrison Keillor finished each of his broadcasts in the same way; ‘Well that’s the news from Lake Wobegon where all the women are strong, all the men good-looking and all the children are above average’.              

Investors should remember that the value of investments, and the income from them, can go down as well as up. You may not recover what you invest. This commentary has been produced for information purposes only and isn’t intended to constitute financial advice; investments referred to may not be suitable for all recipients. Any mention of a specific security should not be interpreted as a solicitation to buy or sell a specific security.

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