DIARY OF A FUND MANAGER - ALL QUIET - 15.11.19

In this week’s Diary, observations about the calmness of markets despite regular provocations, news from the world of business as an escape from politics and travels in the UK.

In the two weeks since the last Diary markets have barely moved. A lot of political promises of course, but investors seem to be in a holding pattern. If there was a faint trend it has been that optimism as measured by equity indices is doing slightly better than pessimism if gilts and gold are anything to go by. Trading ranges are, however, very narrow and volatility is low. The danger of over-analysing moves at the margin is high.

The most extraordinary thing is the lack of reaction to events. The drone attack on Saudi oil production was of momentary concern, but now seems forgotten. The events in Hong Kong might have been expected to increase tensions between the US and China, but still no reaction. The Hang Seng index went up last week. In the UK the political posturing has a surreal edge. Undeliverable promises, layered on invented money, seem to be having no effect either on voters or financial markets. And before I forget, attempts to impeach the President of the United States continue. It’s all rather spooky.

Turning to the world of commerce is a relief. Sometime ago I wrote that business isn’t a soap opera. Usually the trends are slow and observable. A crisis every half an hour may make for good headlines, but it’s not the real world. For example, that Walmart, the world’s largest bricks and mortar retailer is finding ways to compete with Amazon is interesting. Will others follow? These are the imponderables of business where implementation is everything.

More generally, evidence of an economic slowdown is accumulating. Industry has been cautious for a year and now consumers seem to be joining in. What will drive markets next year is what happens next. Dull and boring is probably in the price for the first six months of next year, but after that there will need to be some action. It was interesting that Christine Lagarde, the new ECB President, spent more time in her latest speech trying to cajole EU governments to spend through more enlightened fiscal policies than talking about monetary matters which is what the ECB is there to do. Negative interest rates are not the answer to low growth.

I have spent most of the last two weeks on trains and planes visiting many parts of the UK; Exeter, Birmingham, Carlisle, Bingley, Knutsford and Glasgow, occasionally returning to my desk looking out over an autumnal Aldwych to refuel. Travel broadens the mind even though I spent more time talking than listening! So what did I learn? To start with, those intending to vote Conservative or Labour aren’t going to change their mind. It’s the bit in the middle that matters and there I found more uncertainty than I expected. The massive generalisations trotted out by political strategists and pollsters seem brave to say the least. Not long now.

In contrast, investor concerns are consistent across the country. The prospect of low interest rates for a long time has been driving behaviour for a decade, but those on the sidelines are beginning to realise that cash is far from a risk-free long-term investment. The shares of profitable companies that pay dividends are likely to remain in demand. It’s not all over yet, but 2019 is turning out to be a good year for investment. Who would have thought that twelve months ago, given the extensive list of concerns. Now as we prepare for the challenges of 2020 it is worth remembering that the worry list is always long.

In amongst all I met my second Nobel Peace Prize winner. As it was a Chatham House Rules dinner I have nothing to report other than to make the observation that both described themselves as lucky rather than brilliant. ‘I was in the right place at the right time’. Modesty is an attractive trait when backed up by achievement.

Written by

David Miller
Investment Director

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Diary of a fund manager
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