I find it increasing frustrating that we seems to have gigabytes of data, and yet we increasingly never look at this data or interpret it to its full potential. An example would be photographs, how many of us now have thousands of pictures taken on phones, many out of focus, upside down or just plain useless? And yet we import all and store these images along with the truly precious moments. The gems, hidden amongst the masses.
One could argue that this was always the case, it is just that this storage is no longer in libraries, but now on laptops or the ‘cloud’ and that now access is easier. I would counter that this ease of access does make access any more likely, and given my own family’s experience, in fact seriously less likely.
My problem is not with the technology, which is amazing, it is in the use of that technology which seems suboptimal, in that we are becoming lazy. Obesity of the mind will be our downfall. Be honest – how many of you actually filter your photographs in the same way as when you collected the actual prints?
After the effervescence of recent weeks, this week in the markets saw fixed income dropping 0.3% though equities kept on giving, adding 3%, though most of that coming late on Friday on US data and a Greek “solution”. The week was preoccupied with Greece and Ukraine and the potential for the geopolitical to derail optimism. As always, the EU found a “solution” at 11.59 that gives Greece 4 months and in Ukraine a ceasefire was agreed, though this looks a porous one at best, I feel another round of sanctions will be coming.
Against this top down macro, we had US initial jobless claims coming in low, again below 300k and had continuing claims not move much. The initial claims numbers is now down at historical lows (see graph below) and very much a sign that the US is not laying off, but holding onto talent.
Both are positive equity signals, though on the negative side we had US housing permits and starts a little weaker, and then to top all that off we had Fed minutes be very dovish on rate rises. This should continue to signal a good environment for US equities. Though the continued strength of the US dollar may mean future earnings do not quite grow at recent levels, as FX losses on overseas earnings start to bite.
The question getting louder and starting to be asked by some managers is, ‘when will the QE piper have to be paid’? How will the markets that had such enormous liquidity pumped into them react when that flow of liquidity is not just stopped, but possibly reversed. The question presupposes that the central banks actually will reverse flows and sell holdings before maturity of the notes. No, the various governments will hold bonds until maturity and hope that the ensuing years of inflation, when it finally arrives, will have done what previous US and UK governments have desired, and been whittled away by the inflation effect. Why do you think US/UK citizens buy so much real assets/property, it is because they know that every 10 years or so their governments give them a bout of inflation to deflate the national debt.
This flows into another question currently on the side-lines. This is that hibernating inflation is not ‘no inflation’, and the spectre of its reappearance, begs the preverbal ‘when’ question and subsequent follow-up, ‘when to move into real assets’? Commodities or real estate? Well, the commodity rich emerging market countries have taken such a bath recently that it is a brave man to start doubling down there. It may well be that certain real estate markets outside the insane bubble cities (London for one) may be worth consideration. Locking in financing before serious increases in rates will make yields attractive. Indeed, isn’t this what corporates are doing now with the issuance of Euro and Swiss bonds at effective negative rates. Following Apple may not be such a bad thing in raising non-USD financing at current very low levels.