Diary of a Fund Manager - Imagine 11.01.21

This week marks the Diary’s seventh anniversary and so it is pleasing to report news of a good start to the year despite Washington events. Also, thoughts on how to balance first half threats with second half optimism and what to make of Brexit. Finally, as a follow up to last week’s le Carré quotation, a couple of images that might be of use as we search for investment opportunities in our new reality.

Back in business for the first full week of the year, investors had plenty of news to react to. Equities ended higher with emerging markets outperforming. The UK did even better. Elsewhere, currency markets were quiet and bonds were down. Gold weakened, but in contrast, industrial metals like copper moved ahead. Bitcoin was up by over 25%.
Events in Washington were impossible to ignore, although interestingly, investors did. Perhaps the lesson of the last few days is that all that really matters is a successful vaccine rollout and continuing low inflation. While economic growth remains higher than inflation, deficits do not seem to matter. Central banks and governments can continue to print and spend. As a result, the policy response in most of the world to rising infection rates and renewed lockdowns has been to double down on last year’s generosity. Only in China does monetary and fiscal policy look almost normal.
Back to the US, the Diary Washington Affairs desk remained open despite the danger. I do not think that any of us will be able to relax until the Trump presidency ends. The highlight of the rapidly defeated insurrection were the speeches given by the party leaders and vice President immediately after the rioters had been ejected. Written in just a few minutes, they had the ring of truth that you seldom get from carefully crafted political positioning pieces. I was reminded of election night speeches delivered by defeated cabinet ministers as they faced up not just to the loss of status, but also immediate unemployment.
I suspect that this year, as hopes and fears jockey for position, market volatility will make the headlines on a regular basis. The news flow has been positive for some time as uncertainties have been removed and last week was no exception. Like it or not we now know that the Democrats have control of The White House, the House of Representatives and, courtesy of the Georgia voters, the Senate. What the new Administration will do next is yet to be seen, but the immediate reaction by investors was positive; equities up in anticipation of higher growth and bonds down because of the risk of an inflationary surge. Overall, balancing a troublesome first half of the year with optimism about the second half will affect confidence at the margin, but optimism still in charge. Sorting out the wheat from the chaff remains the investment priority as some things have been changed for good by COVID-19, while others are still in hibernation.
I was out in public only once last week contributing to a Quilter webinar covering a broad range of issues. My task was to talk about global politics, Brexit, macro-economic trends, infection rates and the implications for markets all in just 15 minutes. The impact of Brexit is impossible to simplify in any sensible way as there are just too many moving parts. Puzzling about this afterwards I reached the conclusion that the best policy for a diarist is to report how it is for me – so far so good- and then try to aggregate the experiences of others as we go along. Weighty strategy pieces pale into insignificance compared to the reality of form filling at Dover with a lorry load of deteriorating fish or unshackled entrepreneurs venturing forth. Investors are in a privileged position compared to many; now we wait.
Feedback from readers is always welcome. Before Christmas I wrote optimistically that on 22 December, dawn would be slightly earlier than the day before only to be corrected by several of you by return. I will not go into the details, but although the days do get longer after the winter solstice, the sun does not rise earlier until 5 January. I stand corrected. From a committed explorer who has camped out in the Arctic Circle to study the Northern Lights – in the event far too cold to enjoy the spectacle – and climbed Mount Everest, the insight that lockdown was similar to going on an expedition; life is both simplified and restricted.

Responses to the John le Carré comments last week were interesting, ranging from those who had met him to thoughts about the quotation at the end. Investment is about the search for reality but imagining can help direct our attention to both opportunities and threats. When thinking about the unique experiment that we are participating in at the moment; the creation of huge amounts of money from nowhere, while at the same time deliberately stalling the global economy, the Chernobyl test that went wrong sprang to mind. So far as the future of the global mega-cities are concerned, the first Blade Runner film presented images to conjure with.

Written by

David Miller
Investment Director

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Winner, Outstanding Achievement – City of London Wealth Management Awards 2016