Much Ado About Deutsche

“First let’s break all the rules…”

By Ed Emerson

The FTSE, at 6899, is within 100 points of its all-time high back in April 2015, and while the index has been relatively flat over the last month, it’s up about 300 points over the last three months. The problem is that it’s a cap weighted index and a lot of the big companies therein are energy sector. In short, I wouldn’t rush out and buy a UK Index Tracker (for so many reasons)…ever.

The Dow Jones at 18,328 is just 300 points off the all-time high of 18,636 that it scored back in August. That’s a rocket ready to take off, but not like you might think. It’ll zig and zag as if it’s trying shake off the last remaining investors who haven’t run to bond funds and cash (all three of them), or those standing on window ledges as the latest AAII sentiment report suggests. The more headlines I read about the market’s demise due to interest rates and other equally stupid suggestions pointing to a market apocalypse, the more I want to buy into it. Markets don’t tend to fall when everyone thinks they will. And it won’t be time to put your sneakers on until the papers start comparing the Nasdaq to sliced bread. 

Mike Williams / Genesis Asset Management tells us we’re round-tripping on energy, formerly (and probably still) known as a dog-shit sector since the fracking games started in June 2014. At one point the oil price per barrel fell more than 70%, and prices remain on their deepest downturn since the 1990s. It’s not been pretty – roughly two-thirds of rigs have been decommissioned, a quarter of a million oil workers have lost their jobs and a shedload of companies in the sector, exploration and support services alike, have gone to the wall. What people forget is that the oil price per barrel has, for 100 of the last 150 years, meandered around the $40 per barrel mark. Will it rebound to $150 per barrel? Probably not – too much on the fracking / supply chain front has changed. Look for a $40 to $80 per barrel fluctuation for the next few years to come. So, if you’re a day trader looking for volatility you’ve just found your next nirvana.

Let the retail sales bullshit begin. Every year the same goddamned thing. How many papers have jumped on the “cloudy with a chance of meatballs” routine so common during the holidays about US / UK consumer spending. Folks, it’s not the spending that’s the problem, it’s the measures they’re using. And don’t think for a second that they’re pulling the receipts of every retail chain going and somehow tallying with an oversized coffee-stained calculator. We live in a world of estimations (read crap shoots). Any employment survey you’ve ever read about is pretty much comprised of a sample of phone calls to houses during the middle or the day to see if anyone is home, or street-side surveys. The last time someone approached me to ask about my employment status I told them to fuck off. Wonder which box that ticked when the Office for National Statistics reported their findings to Whitehall…

There’s much ado about Deutsche bank just now. Momentarily in the shit due to its shenanigans and subsequent fine of $5.4 billion (down from $14 billion initially) for assorted financial crisis misdeeds, the once toxic mortgage bonds factory dropped 22% off its share price over the last two weeks. So what did everyone do? Well, they ran of course. Was that the right thing to do? Nope. If you owned it you should have held onto it. If you don’t own it and want it you should buy it now cheap and then cancel your subscription to the news until Q1 2017. It’s gonna sound like hell out there, but Germany’s bedrock banking house ain’t going anywhere but up.   

Oh, and the next time you hear about the Nikkei or some other index “tumbling” because of Deutsche or some other such stupid suggestion, look the other way. If you think some news reader can tell you which way the market moved based on a single event then you’ve got your head on backwards. Attempting to find market predictability factors, or even reasons for these movements, is enough to stall every data mining computer ever invented. And if they did know for certain do you think they’d really be telling you. We know what we know on the basis of long-term trends and supposition. And that means we don’t know much. But history tells us that sticking with the markets has historically proven very worthwhile.

To underscore that point here’s something (below) from the remarkable Alan Steel, Chairman of Alan Steel Asset Management in Linlithgow. And by the by, if you were looking to invest your money and you’re based in the UK, that’s the firm to go to. If you’re stateside reading this, it’s Genesis Asset Management in Chicago. Ask for the president, Mike Williams. Tell him Ed Emerson sent you…and that I owe him a good bottle of red wine.

Alan writes: “A report compared investment performance between those who believe in Buy and Hold against other groups who actively Buy and Sell.

“There were three categories measuring short term activity. The first was those who turned over less than 10% of their equity holdings, the second group moved up to half their holdings (actively managed) and the third group moved more than half their equity holdings (aggressively managed).

“The results are stunning. Portfolios with little change actually made a small loss 0.5%. But those who switched up to half their portfolio showed an average loss of 6% and those who aggressively changed their investments lost on average 12%. Wow.

“What’s remarkable is that no group showed any gains. Now you might think that’s hardly surprising given all the negative headlines, but reality for patient equity investors this year is completely different.

“Since Brexit on the 23rd of June the FT All share Index Total Return is up 9.1%. Over in the US the S&P 500 TR is up 16.8%. Yes really. Over the last six months the FT All Share TR is up 14.4%. The S&P 500TR is up 16.3%. But those rushing into Absolute Return funds , and there’s thousands of investors doing so according to official statistics, have not fared well. Standard Life’s GARS, the biggest such fund by miles has fallen in price by 0.85% over the same period.”

Now go and sin no more.

Ed Emerson, Editor, HNW Magazine

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