An acquaintance of ours asked us recently why, unlike the majority of investment managers, we weren’t talking the stockmarket up. We explained it was because longer term economic fundamentals will make real progress difficult. We weren’t talking it up pre recession and we will not do it now. We are advisers, not cheerleaders and we invest clients’ money as we do our own. He went on to say that his investment adviser had delivered growth of 30% over the past few months. We pointed out that as the 30% improvement came after the same party had presided over a halving in value of his investment capital, we weren’t overly impressed.
Now, it’s not that we are miserable. We come to work with smiles on our faces; we like animals and help elderly ladies across the road. However, we are not sheep; they end up getting sheared or covered in mint sauce. Reality we can cope with but nonsense is a commodity that causes us problems. As such, if your plan of campaign relies on a return to bubble era conditions then in our view, you’re likely to be disappointed. However, if you are realistic enough to appreciate that we have entered a new era, then you are in with a chance of worthwhile results.
The late economist, J K Galbraith, said that pessimism was the sign of a superior intellect. We humbly hope he was correct but we find it interesting to note that people who had little idea there were problems with the global financial system a couple of years ago, now appear convinced everything has been fixed. Who fixed it? The people who had no idea anything was wrong in the first place. How did they fix it? By throwing incredible amounts of debt at a problem created by er…. incredible amounts of debt. Who will prevent it happening again? The people who missed it originally and are now repeating the same mistakes. There’s an obvious disconnection here and Dr Watson would crack this mystery all on his own; Holmes wouldn’t need to leave Baker Street.
There is no doubt the mood music has changed. Expectations are strengthening that recovery is just around the corner while both France and Germany have reported anaemic growth in GDP. However, debt burdens in Europe are considerably less than in the UK and US. In our view, there are far too many people travelling hopefully and the truth is that the real economy (as opposed to the stockmarket) remains mired in the same old problems that caused the difficulties initially; namely an over-reliance on debt at corporate, individual and government level. These debts will either have to be dealt with the old fashioned way (i.e. paid back) or, alternatively, inflated away in a tidal wave of money printing.
Neither outcome will be good and successful investing will require a selective approach. Present economic conditions are close to unique and in our experience prediction is often difficult; especially when it concerns the future. We don’t pretend to have all the answers but we do believe we are asking the right questions. In this version of economic blind date, by all means hope for Angelina but realistically, it’s more likely to be Jordan.
John Newsome can be contacted on: 01423 705123 or email:john.newsome@williams-im.com
