‘The Inbetweeners’ is a British coming-of-age sitcom that brought school reminiscences and hilarity to our TV screens a few years back. It also gave us many pejorative terms that have found a lasting place in our vocabulary, like ‘Bus Wankers’, to describe wankers that take buses. This was generally shouted out of a car window while driving past bus stops, or indeed, in many other put down situations.
For the British nation, we always knew that the defining moment of exiting from lockdown would be the pubs reopening. The date is set for July 4th, our ‘Independence Day’ or ‘Super Saturday’ when, after
more than three long months, life may resume a new normal. Needless to say, it’s almost guaranteed that the heatwave or indeed the summer will have ended by then, as the rule of Sod dictates, and the restrictions in place, toilets not open etc, may dampen the VE day
spirits, but still.
The HindeSight Investor Letter is a free-thinking exploration of both our economic and social world, often placed in historical context to help inform us all of the implications of our human actions.
- 12/19 HindeSight UK Dividend Letter - December 2019
- 10/19 HindeSight UK Dividend Letter - October 2019
- 09/19 HindeSight UK Dividend Letter - September 2019
- 08/19 HindeSight UK Dividend Letter - August 2019
- 07/19 HindeSight UK Dividend Letter - July 2019
- 06/19 HindeSight UK Dividend Letter - June 2019
- 05/19 Hinde Capital Research: Systematic Momentum Strategy
- 05/19 HindeSight UK Dividend Letter - May 2019
- 04/19 HindeSight UK Dividend Letter - April 2019
- 03/19 HindeSight UK Dividend Letter - March 2019
- 03/19 HindeSight India Letter (Q1 2019)
- 02/19 HindeSight UK Dividend Letter - February 2019
- 01/19 HindeSight UK Dividend Letter - January 2019
- 12/18 HindeSight UK Dividend Letter - December 2018
- 11/18 HindeSight UK Dividend Letter - November 2018
- 10/18 Hinde Capital Research India
- 10/18 HindeSight UK Dividend Letter - October 2018
- 10/18 HindeSight India Letter (Q3 2018)
- 09/18 Hinde Capital Research
- 09/18 HindeSight UK Dividend Letter - September 2018
- 08/18 HindeSight UK Dividend Letter - August 2018
- 07/18 HindeSight UK Dividend Letter - July 2018
- 07/18 HindeSight India Letter (Q2 2018)
- 06/18 HindeSight UK Dividend Letter - June 2018
- 05/18 HindeSight UK Dividend Letter - May 2018
- 04/18 HindeSight UK Dividend Letter - April 2018
- 04/18 HindeSight India Letter (Q1 2018)
- 03/18 HindeSight UK Dividend Letter - March 2018
- 02/18 HindeSight UK Dividend Letter - February 2018
- 01/18 HindeSight UK Dividend Letter - January 2018
- 01/18 HindeSight India Letter (Q4 2017)
- 12/17 HindeSight UK Dividend Letter - December 2017
- 11/17 HindeSight UK Dividend Letter - November 2017
- 10/17 HindeSight UK Dividend Letter - October 2017
- 10/17 HindeSight India Letter (Q3 2017)
- 09/17 HindeSight UK Dividend Letter - September 2017
- 08/17 HindeSight UK Dividend Letter - August 2017
- 07/17 HindeSight UK Dividend Letter - July 2017
- 06/17 HindeSight UK Dividend Letter - June 2017
- 05/17 HindeSight UK Dividend Letter - May 2017
- 04/17 HindeSight UK Dividend Letter - April 2017
- 03/17 HindeSight UK Dividend Letter - March 2017
- 02/17 HindeSight UK Dividend Letter - February 2017
- 01/17 HindeSight UK Dividend Letter - January 2017
- 12/16 HindeSight UK Dividend Letter - December 2016
- 11/16 HindeSight UK Dividend Letter - November 2016
- 10/16 HindeSight UK Dividend Letter - October 2016
- 09/16 HindeSight UK Dividend Letter - September 2016
- 08/16 HindeSight UK Dividend Letter - August 2016
- 07/16 HindeSight UK Dividend Letter - July 2016
- 06/16 HindeSight UK Dividend Letter - June 2016
- 05/16 HindeSight UK Dividend Letter - May 2016
- 04/16 HindeSight UK Dividend Letter - Apr 2016
- 03/16 HindeSight UK Dividend Letter - Mar 2016
- 01/16 HindeSight UK Dividend Letter - Jan 2016
- 12/15 HindeSight UK Dividend Letter - Dec 2015
- 11/15 HindeSight UK Dividend Letter - Nov 2015
- 10/15 HindeSight UK Dividend Letter - Oct 2015
- 09/15 HindeSight UK Dividend Letter - Sept 2015
- 08/15 HindeSight UK Dividend Letter - Aug 2015
- 08/15 The Great Wall of Money
- 07/15 HindeSight UK Dividend Letter - Jul 2015
- 07/15 Another BRIC In The Wall
- 06/15 HindeSight UK Dividend Letter - Jun 2015
- 05/15 HindeSight UK Dividend Letter - May 2015
- 04/15 The Ghost of 37
- 04/15 HindeSight UK Dividend Letter - Apr 2015
- 03/15 The Road To Nowhere Part II
- 03/15 HindeSight UK Dividend Letter - Mar 2015
- 02/15 The Road To Nowhere Part I
- 02/15 HindeSight UK Dividend Letter - Feb 2015
- 12/14 HindeSight UK Dividend Letter - Dec 2014
- 11/14 Bubbleology - The Science of Bubble Money
- 11/14 HindeSight UK Dividend Letter - Nov 2014
- 10/14 SG Seminar: Demystifying 'Smart Beta'
- 10/14 HindeSight UK Dividend Letter - Oct 2014
- 10/14 SG Hinde UK Dynamic Equity ETN
- 03/14 Dividends - Back to the Future
- 12/11 Should I Stay or Should I Go?
- 12/11 Gold Perspectives December 2011
- 12/11 A Timely Reminder
- 11/11 Singularity - Gold Symposium Presentation
- 10/11 Singularity - Transcendent Money
- 08/11 GATA Gold Rush Speech 2011
- 06/11 Mines and Money Presentation - Beijing 2011
- 04/11 Silver Criticality Why Silver Might Crash
- 03/11 Freedom Fighters: The Facebook Revolution
- 02/11 Gold Portfolio Management
- 01/11 Nessun Dorma - None Shall Sleep
- 12/10 The Euro Brady Bunch
- 11/10 Debt: There is No Jubilee
- 10/10 The World Monetary Earthquake
- 10/10 CMRE Speech New York
- 09/10 Gold Wars - Speech
- 09/10 Gold Wars - Slides
- 08/10 Silver Velocity - The Coming Bullet
- 08/10 ETFs (GLD) - the new CDO in disguise?
- 07/10 Money: The Real Stuff
- 06/10 Gold: The Currency of First Resort
- 05/10 ECB The European Commission's Whore
- 04/10 Beware The Leverage
- 01/10 The Golden Truth
Our world has changed. Depending on where you are in the world, you have most likely been in lockdown for several weeks. Talk of exiting from the strict restrictions of confinement comes with the unwelcome realisation that opening up the economy does not necessarily mean opening up social lives. Sports events, pubs, concerts and even a trip to the barbers seem to be a long way off at this juncture. Some people are luckier than others, living in rural areas will be far more pleasant than inner-city dwelling.
On 20th February, the SP500, US stock index stood at 3400. Just one month later, it had dropped to 2200, a fall of 35%. Paper wealth destruction has been seen across the globe. It is estimated there were losses of $22 trillion in global stock market capitalisations, which doesn’t include the huge corporate bond markets. As prices sank and yields to government bonds fell, neither the prices at which real estate would be marked to market. There have been very few safe ports in the storm, government bonds, gold and, of course, cash.
I have just read the latest Robert Harris book, ‘The Second Sleep’. It lacks his usual story-telling tension and expertise in my opinion, but it is very thoughtprovoking. The reader soon discovers that something is amiss, as he confronts ‘black artefacts’ with a halfbitten apple sign hoarded in antiquarian collections, while the church’s dominance and horse-drawn transport both chime with time of the 15th century. In fact, the book is set in 1468, 800 years in the future, with the clock having been reset at 666 after the Apocalypse. The chilling letter from a Professor Morgenstern, winner of the 1999 Nobel prize for ‘physic’, notes that pre-2025 Apocalypse, “London existed at any moment only six meals removed from starvation” and that “society has reached a level of sophistication that renders it uniquely vulnerable to total collapse”.
As we turn our back on the old year and move into the new, it is usual to reflect on the market movements over the last 12 months. It is easy to agree with Zerohedge that 2019 was the year of buying everything, as the global markets added $24 trillion in ‘value’ with two of the largest companies, Apple and Amazon, adding $1 trillion alone! Seemingly, everything soared, stocks, bonds, even precious metals, as the wobbles of 2018 became a distant memory. It is also a time to reflect on why we write this newsletter in the first place. As long-term investment managers, we have been used to reporting on market events to keep our investors informed on our understanding of the global financial horizon.
Firstly, apologies, for a very late arrival of the ‘November’ newsletter, we might have to move smartly on to the New Year and short change you on your regular insomnia aid. Hopefully, our 2019 stock selections with 13 winners to 6 losers will be some consolation for the festive season. The December UK election is upon us. If my publisher is on his usual pre-Xmas drinks schedule, one of these unlikely characters may well already be installed in 10 Downing Street as Prime Minister by the time you are reading this. Guilty as charged of regurgitating old material, as you can see from the extract below from the last general elections.
Anyone who had the misfortune to spend time in London in October will no doubt have had their daily commute disrupted by climate change protesters under the banner of ‘Extinction Rebellion’. Wikipedia describes ‘XR’, as it likes to be known, as a global environmental movement with the stated aim of using nonviolent civil disobedience to compel government action to avoid tipping points in the climate system, biodiversity loss, and the risk of social and ecological collapse. One of the most prominent faces of the climate activists is a 16-year-old Swedish schoolgirl, Greta Thunberg, whose impassioned speech at the United Nations Climate Action Summit in New York last month reverberated across the globe.
On the 17th September, the US overnight repo rate hit 10%, almost 8% higher than the stated Federal Funds target rate. The Federal Reserve was forced to add $53bn in reserves to calm this liquidity spike, its first overnight repo operation in a decade.
Last weekend, I was in Dublin visiting some old friends. The Guinness was not flowing as much as it did in days gone by, but an exceptionally pleasant time was had by all. I was amazed at how wealthy and prosperous Dublin has become. If ever there were tales told of cycles of boom to bust to boom, Ireland would surely get a mention. Ten years ago, at the height of the financial crisis, there were 100,000 demonstrators on the streets there, protesting as the economic slump saw the unemployment rate soar from 4% to over 14%. The banks basically closed as the property market fell apart and projects were mothballed and boarded up for years. There are no signs of that today. A huge influx of financial and tech companies find Dublin to be an ideal spot for their European operations and the economy appears to be unstoppable once more. It would only be the old cynic in me if I was to say, “I’ve seen this all before.”
It is now just over ten years since the nadir of the financial crisis. For most stock markets, the month of March 2009 marked the low point. Although every economist clamoured to announce that they had seen this crash coming, which had wiped off half the market capitalisations from early 2007, and all the subsequent recessions, few did. As the banking industry struggled through those dark days, today’s challenger banks of Monzo, Metro or Starling weren’t even a concept. I will leave that worrying thought for another letter.
I have made many mistakes in my life, and will no doubt continue to do so; hopefully, not the same ones. But I was lucky enough to buy my last London house in 2000 and ‘smart’ enough to sell in 2015. Since then, according to the experts at Property Vision, prices have dropped 30%, with transactions for the poor estate agents falling up to 70% since their heyday. We can blame much on the insanity of the stamp duty rise to 12% at that time; a particularly poorly thought out plan, even by the UK government’s standards of ineptitude. As stamp duty on typical properties in central London now equates to 4.5 years rent, only the foolhardy would make purchases for capital gain. Would-be vendors of their properties have become painfully aware of the word ‘illiquid’.
Momentum investing involves capitalising on the continuation of a trend that is in play by going long stocks, futures or ETFs and shorting assets with downward trending prices. This type of investing holds that trends can persist for some time and its possible to profit from them by going with the trend until the conditions have been broken. For the purposes of this study, we will only be investing on a long only basis and using various filters to assess the market conditions. The objective of this paper is to test and develop the theory that momentum within the equity market and multi-asset markets develops at least five months prior to the delivery of performance. We will first test this methodology on the UK equity market and then on a broader range of instruments.
Market historians, with all the benefit of hindsight, often look back on events or quotes that seemed perfectly reasonable when they were made at the time. In 1929, before the crash, the great economist Irving Fisher famously stated, “Stocks have reached a permanently high plateau.” In more recent times, we can well remember the boasts of Cisco’s chairman, John Chambers, at the height of the internet bubble in 2001. He appeared on the front page of Fortune magazine after Cisco had just eclipsed GE as the largest company in the world, at over a half-trillion dollars in market capitalisation. Within 13 months, the stock had fallen over 80%.
Unfortunately, the overview starts with a rant and a warning. Every financial market participant in the UK, whether they are an investment manager or financial planner, has experienced a huge increase in regulations by the authorities in recent years. This usually translates into a massive increase in box-ticking and form licking. It’s administrative guff of the most turgid variety, coupled with vastly increased costs, which are borne by the whole industry, from top-level firms to the smallest retail investor. All of this, in the vague belief that it is desperately required to make the industry better and safer, especially the ‘vulnerable’ small investor. But, as my old friend Captain Blackadder would say, ‘The problem with the plan, Baldrick, is that it was bollox.’
Looking forward to relaxed hemp regulations, a new analysis estimates that the CBD market could explode - and outpace marijuana. Everyone seems to be talking about the new craze, the cannabidiol (CBD) market. In a few short months, it has become the fastest selling ‘food supplement’ across health shops and online websites. It promises everything from anti-anxiety, lower blood pressure and anti-inflammation to treating chronic pain relief and cancer! Too good to be true, surely? But what is it, for starters?
The general election in India is fast approaching, with Prime Minister Narendra Modi and his party facing a path to glory. The political steamroller is now in full swing with all politicians campaigning in what will be the world’s largest democratic vote. This will be a significant event that takes place over several weeks to make sure that the millions of voices across India are heard loudly and clearly. The official date is yet to be announced but polling is due to take place between April and May 2019. During the last general election, 830 million individuals were eligible to vote. This time around the country is expecting about 875 million people to have their say. Modi and his nationalist party are looking to be re-elected following their landslide victory in 2014 but are being opposed by Rahul Gandhi, the descendant of the Gandhi dynasty
Most readers will have been aware of my view of cryptocurrencies over the last few years. It is not just the insanity of the ‘valuations’, the security of the ‘asset class’ has been at serious risk of appropriation and actual loss, as it is unregulated and unsupervised by the majority of global authorities. This headline, to me, sums up the entire industry at the current time. I’m sure that some of the amazing digital advancements the crypto world has developed will be incorporated into the recognised banking and payment world in the future, but ‘cryptos’ will be just a footnote in history by that time.
Despite the dark, cold days in the Northern Hemisphere, the New Year often sprinkles some optimism on the stock markets. Seasonally, there is a late first quarter positive bias, leading into the famous, ‘Sell in May and go away’. With the UK FTSE100 index having fallen a whopping 15% in the last six months of 2018, market participants may well feel somewhat reticent about these ‘bargain’ stock prices. Our stock pick, this month, Galliford Try (subscription buy alert: 630p. 4th Jan 2019) fell almost 50% in less than four months with the UK ‘worries’, but like all homebuilders, it has yearly positive seasonality in Q1.
Charles Mackay’s book, Extraordinary Popular Delusions and the Madness of Crowds, might well have been published in 1841, but I couldn’t help myself from putting it in our newsletter again. Having just been sent the latest twelve-month chart of the major cryptocurrencies, it seems that delusions and madness are still rife in 2018. Staggeringly, the chart above only shows what has happened since last Christmas, when my stepson’s millennial friends were telling me the future of the world would involve cryptos and that Litecoin could be cheap at $200. In fact, the best performing ‘coin’ is actually Bitcoin, down a mere 80%, while Litecoin and other better-known cryptos are down 95%, with many now at a big fat 0. Talk about hero to zero in short order. But the bandwagon for events involving cryptocurrencies and alt-coins has been just as remarkable. If you didn’t make any of 2018’s events, you might want to look at the schedule for 2019, but do remember some basic maths. Just because an ‘asset’ class is down 95%, doesn’t mean it’s cheap, you can still lose 100% of your investment.
It seems rather fitting that this year’s Remembrance Sunday actually fell on the 11th of November to commemorate 100 years since the Armistice was signed to end the First World War. Of course, we all know that it didn’t turn out to be the war to end all wars. In fact, in the last century, there was arguably no year that a war wasn’t being waged somewhere around the globe. The Armistice was signed by the three representatives of the belligerents in the private railway carriage of the Marshal of France, Ferdinand Foch, Supreme Allied Commander. The terms of the Armistice were exceptionally harsh and non-negotiable. Foch, who lost his son early in the war, wouldn’t even allow the cessation of hostilities at the time of the signing, some six hours before the war officially ended at 11.00 am. Some 2,723 soldiers were tragically killed in those last few hours. Only 5% of those killed during WWI were civilians. In every war since, civilian deaths have made up an increasing percentage of the fatalities, reaching as high as 80-90% in many recent conflicts.
This research paper follows a small selection of our work on Indian equities, undertaken to demonstrate our commitment to the knowledge that active strategies, both in the actual stock selection and cash levels in portfolios, can have material differences in, not just wealth creation, but more importantly wealth protection.
In my opinion, there is no clearer demonstration of inflation reducing the purchasing power of money than money itself disappearing. There have been several articles in the press over the last five years, discussing the ‘imminent’ scrapping of the 1p coin, the English penny, which has been in existence since decimalisation in 1971. Of course, it will happen at some time, just as it already has in many other countries. Many people will not even remember that we also used to have a 1/2p new coin, but it was demonetised and withdrawn in 1984. The penny and then the two pence coin face the same fate, who knows where it will all end.
With the festive season in India approaching at a ferocious pace, we go into this period with many market participants having been caught offside. For several months, we have been warning that India’s equity markets are very stretched in value and their dependency on oil imports will have a significant impact on the country’s markets going forward. Oil for the last 12 months has been in a strong bull run, creating an ever-growing drag on India and its corporate world. Volatility finally arrived in September when the markets were shocked by pandemonium within the country’s unsupportive credit market.
This research paper follows a small selection of our work, undertaken to demonstrate our commitment to the knowledge that active strategies, both in the actual stock selection and cash levels in portfolios, can have material differences in, not just wealth creation, but more importantly wealth protection.
We started writing our macro HindeSight letters over ten years ago. The last five editions have been entitled HindeSight Dividend letters, historical copies of which are freely available in the reports section on our website: www.hindecapital.com In that time, we have advised our readers of our views on many asset classes, old and new, as well as individual stock picks for any value-orientated investor in the UK equity market. Apart from the internecine Brexit debacle, worthwhile news seems to have been relatively slim on the ground this month and so we thought we would show a few of our past front pages and articles in some ‘vain’ hope of convincing our readers that our work may well have its uses!
“It’s a game of two halves” goes the ofen-used football pundit’s line. Well, in the economic world, it would certainly look like a world of two halves to the visiting Martian. On one side, we have the USA with its strong currency and cyclically low unemployment rates which are producing high global purchasing power. The US wealth feelgood factor is clearly there for all to see in the current valuations of the US stock market. John Hussman’s favourite cyclically-adjusted CAPE is still there in all its glory and the FAANG stocks (Facebook, Amazon, Apple, Netflix and GoogleAlphabet) are a huge part of this. A hat-tip to John Maudlin’s Frontline this week for bringing us the Small Business Optimism index, a long-running series by the National Federation of Independent Business. Things really couldn’t get any better in the US, where as much as half of the country still seems to actively hate their president.
The feelgood factor seems to be continuing unabated this summer. In the UK, a glorious heatwave coupled with an extended run in the football World Cup has only added to it. Unemployment rates on either side of the Atlantic remain at cyclically low levels. Unfortunately, these are well-known lagging indicators of the economy that tell economists how much it has improved, rather than telling us anything about the future, which is hardly ever a good sign from these levels. There is an old saying, ‘When something goes on far longer than one would expect, the move when it happens might well be very quick.’ The first part could easily be applied to the state of play in the world economy, as worrying as that might be. According to the analysts, the US stock market has been in a bull market since March 2009, that’s 112 months and counting, and only within a couple of months of a postwar record expansion.
In Charles Mackay’s famous book from 1841, ‘Extraordinary Popular Delusions and the Madness of Crowds’, he tells the histories of several financial bubbles with respect to crowd psychology. In the United States today, we are happily reminded that the crowd is still as mad as ever with a handful of huge monopolistic FAANG stocks (Facebook, Amazon, Apple, Netflix and Alphabet-Google) seemingly holding up the rest of the world, despite metrics that history will look back on and laugh at. In the rest of the world, it’s much more straightforward. Dollar strength and local currency weakness have both been the theme since the start of the year. Major currencies, like GBP and EUR, have slowly lost 6-8% since their EURUSD 124 and GBPUSD 1.44 high prices, but in the emerging world, things are distinctly less orderly.
October 24th, 2003, I remember walking down to the Millennium Bridge in the City from my current bank employer’s offices at the old Financial Times building in order to watch the flypast of the last flight of the Concorde. I had been lucky enough in the previous two decades to wangle a good few flights at supersonic speed, usually to New York, on some ‘urgent’ business. At 60,000 feet cruising altitude travelling at Mach 2, you were left in little doubt that you were bettering typical aircraft abilities by double on both counts. Age, unprofitability and the tragic crash of the Air France Concorde in 2000 are always mentioned as the reasons for its demise but, nevertheless, in the last twenty years, there has been no replacement and we have had to content ourselves with flying at half the speed as before, a strange regression in terms of human advancement.
In the 1998 film, ‘Meet Joe Black’, actor Brad Pitt, pretends to be an agent from The US Internal Revenue Service, rather than reveal his true identity of being Death, the grim reaper, come to tell William Parrish, played by Anthony Hopkins his time is up. It plays on the belief that nothing is certain in this world apart from ‘Death and taxes’. Last month, in the UK, saw yet another tax, on sugar-sweetened soft drinks come into force, a legacy of George Osborne’s 2016 budget. Then, it was proposed that at least a 20% tax was imposed and the forecast revenue of £520m would be used on extra funding for child sports. Since April 6th this year, manufacturers will have to pay a tax of 24p per litre on drinks with greater than 8g of sugar per 100ml and 18p on drinks with 5-8g. For now, fruit juices and drinks with high milk content will be exempt.
On the evening of March 12th, police were called to an address in New Malden, a suburb in south-west London on reports of a man found dead. After the pathologist concluded a compression to the neck, indicating strangulation by hand or ligature, a murder investigation was launched. The victim was Russian businessman, Nikolai Glushkov. This event may well have gone largely unnoticed until eight days later, the two ‘nerve agent’ poisonings of Sergei Skripal and his daughter Yulia, rocked the headlines. The first time that a nerve agent had been used since the Second World War, starting a the largest tit-for-tat diplomatic incident in years.
Spring seems to be slow to arrive in many northern hemisphere regions this year, but our Indian quarterly letter reminds us of the changes that have been already happening in the world’s financial markets since January. The most dramatic changes have come with the general collapse in the crypto-currency arena, with many ‘currencies’ losing up to 90% of their values. Analysts will discuss whether the increased regulations regarding ‘alt-coins’, a reduced ability to market through social media channels and more cyber theft frauds are the reasons for this, but with a debatable intrinsic value close to zero, it could just be a standard mania-boom, crash bust phenomenon.
Over the years, I have found that one of the best ways of writing a relevant monthly financial newsletter is to copy down a few headlines from news sources on a daily basis. No explanations or details, just the headlines, and then review them from time to time. These were some of the more concerning headlines over the last month. Of course, we all ‘know’ that the high street is struggling, as it’s under fire from online competition, but the general belief is that the UK economy, like most Western economies, is strong. After all, we are back to the lows in the unemployment cycle, on either side of the Atlantic.
My impression is that future generations will look back on this moment and say “… and this is where they completely lost their minds”. This statement was written a couple of weeks ago by a well-known market analyst and academic, John Hussman. He could have been referring to many markets over recent history. Interest rates, which until last year had been on a multi-decade bull market, where the final peak saw negative interest rates in many countries. Governments and corporates, being paid to borrow money from willing investors, desperate to lock-in a negative return in many bond markets. If that isn’t the height of financial insanity, I don’t know what is.
‘The day of the Mifids’ was the headline in the London City A.M. newspaper on January 3rd 2018, making reference to the 1951 novel by John Wyndham. In this bestselling book, ‘triffids’ are a tall, venomous and carnivorous plant species that rages around the world after a meteor strike renders much of the human population blind. The Directive, MIFID II, is the second Markets in Financial Instruments Directive to be introduced in the UK and Europe. It’s reported to be a long-awaited regulatory shake-up, the biggest to hit the financial markets since the 1986 ‘big bang’, which is a poor comparison by any measure. ‘The big bang’ was part of Margaret Thatcher’s reform policies to open up the UK financial markets, stop restrictive practices, such as foreign entity exclusion, and generate huge new market activity in London, which was rapidly falling behind other financial centres. It worked. Coupled with a fair tax regime, London has held its own and thrived, above any European city competitor. It has also, in terms of volumes in multiple financial markets, been better than New York and Tokyo in the 30 years since then.
As we leave 2017 and move into the New Year, we leave behind a year of strong equity returns in India. The main index, the Nifty 50 index was up almost 30%, solidly climbing eight months of the year. While India’s demographic story has many analysts comparing China’s hare with India’s tortoise performance, India’s equity markets have hardly outperformed its peer group. While emerging markets continue to see fund inflows, most of the MSCI, apart from Pakistan, have done better than India in the last few years. In fact, while everyone ‘knows’ how well India has performed, it is more of a surprise that the US SP500 index has done just as well, more or less, over a multi-year period. While most countries have experienced increased P/E multiple expansion, India has the potential to see stronger earnings in the future. As India is set to become the world’s most populated nation within five years, we ask how that is going to translate into investment returns.
Every holder of Bitcoin, or the hundreds of other cryptocurrencies, that is sitting on large paper gains might be well advised to play the old Country and Western hit by Kenny Rogers, ‘The Gambler’, as the lyrics may have particular relevance. Whether it’s the new Bitcoin holding billionaire Winklevoss twins, famous for losing their idea to Facebook co-founder Mark Zuckerberg, or the alleged 100,000 people who signed up to Coinbase recently, they should all listen carefully. However, Mike Novogatz, who believes that cryptocurrencies are the biggest bubbles in our lifetimes, probably doesn’t need this advice. As a longterm macro trader, he should have had this beaten into him over the years.
Mark Carney, the Bank of England Governor, finally raised UK interest rates by a whopping 0.25%, reversing his cut last year post-Brexit. So it’s net-net in his tenure, no change. The market interpreted his actions and statement that further rate rises will be few and far between. Despite the Retail Price inflation index at 4% and wage pressure building by the day, central bankers worry more about ‘how our economy will cope’ without sub 1% interest rates. The market snoozed on, the FTSE share index and the 10-year gilt continued to flatline, while the sterling currency and short-term money rates eased somewhat. Volatility in most financial markets continues to tread water at multi-decade lows.
Back in the 1980s and 1990s, when working in the financial markets was not yet suppressed by the fun police, people had nicknames. I’m sure the Human Resources departments have banned them now under some guise of political correctness, but back then, they were all the rage. Invariably, any number of ‘senior’ brokers gave them out at first sight to both their employees and the traders at institutions that used the brokers to gain access to the global markets. In those days, we still made phone calls and used hand signals, and the nickname was often, in some way, a measure of anonymity on markets like LIFFE. It could have been anything, some rhyming slang of your name, your accent or the drink you ordered on your first pub outing. The trouble was, it stuck for years, whether you liked it or not. As a result, your real name was frequently never known. Here are some examples:
Welcome to the inaugural HindeSight India Letter. India will be the most populous nation in the world within a few years, the people are getting richer and the financial markets are opening up to the global investor. It is, quite frankly, the most exciting place to be for investments in the emerging world and we are delighted to be bringing a newsletter to domestic and foreign investors to enable them to share in these fantastic opportunities. At a time of paltry returns in developed markets, both in equity and bond markets, India potentially offers the holy grail of high interest rates for bonds and high earnings growth in equities with a stable currency amid declining inflation. Long term global investors may quickly recognise the same characteristics today in India, which were present in the 1990s in the western developed markets that were responsible for the huge investment gains of that decade. There is not a moment to lose. The HindeSight Indian Letter will be published every quarter with regular updates in between focusing on • Stock and bond recommendations • Investment insights • Current affairs • Gold The purpose of any financial newsletter should be to better understand the financial markets and be able to make better investments, in both value and risk terms. Our newsletters should to be understood by and be of a benefit to people who have little knowledge of finance as well as market professionals. The managers have been actively trading a variety of financial markets since 1985, including interest rates, bonds, currencies, equities, options and precious metals. Their skills have been developed to focus on a systematic approach to making timely and well-thought out investments that benefit from the best risk/reward return horizons.
An old colleague of mine, who used to work at UBS (the name for the merged banks of Union Bank of Switzerland and Swiss Bank Corporation), sent me the photos below from an article written last year in ‘Business Insider’. The left-hand one is taken in 2008, when their offices in Stamford, Connecticut were filled to the rafters, despite being the size of two American football fields, and the right hand-one is taken last year. Of course, the party line will be that ‘some’ of the investment bankers have been relocated to other offices, but the reality is that many have been relocated home.
Flying a Spitfire was still every boy’s dream when I was growing up some 30 years after the war had ended. Sadly, only rich plane enthusiasts have managed it since. However, I have just come back from the IMAX cinema in Waterloo after watching Christopher Nolan’s new film ‘Dunkirk’ where I found myself as close as I am ever likely to be in terms of aerial combat in this life! In terms of living through the sheer terror of being involved in the 1940 WWII evacuation of Dunkirk, this was incredibly real. Whether you were Army, Navy, Air Force or civilian, the IMAX huge screen and surround sound experience is overpowering and well worth the trip. No doubt it will be up for awards, as new technology remakes of classic stories invariably are, and for pure cinematography, who am I to argue. The historian critics will moan that the beaches in the movie are empty, like a winter’s day on Camber Sands, rather than rammed with half a million men and all the military hardware, and the fleeing British Expeditionary Force was forced to leave with not a single smoker among them.
Despite a reasonable outlook for the weather this summer in England, profits from investments and trading seem harder than ever with many participants treading water at best. The FTSE is up a few percent as a whole, 10-year gilts yield 1% and bank interest is still almost zero. The US SP500 index has barely been out of a 1% trading range for the last 6 weeks, which is almost unheard of. This extraordinary lack of volatility at an elevated plateau of valuations might have been the catalyst for US Fed Chairman Janet Yellen to predict that there would be no more financial crises in her lifetime. She will be 71 years old on August 13th and we are not aware of any imminent demise, so that is quite a statement at a time when ridiculous monetary policy has increased the size of the central banks’ balance sheets and money supply to the moon, zero interest rates have allowed anyone and everyone to borrow more and more with impunity for NOW, and valuations on most asset classes are at such levels that investors face crippling losses on any kind of normalisation while current returns are minuscule. Now, admittedly, she has never had a proper job, which some would say allows a certain sense of arrogance, but sadly, all I see is another academic forever out of touch with the real world.
‘None of the above’ was the slogan from the classic film Brewster’s Millions who fought his campaign on the unworthiness of all the other candidates. Had it not been for the fact that the polling station was next to the local pub, I wouldn’t have bothered to vote, despite my wife’s best efforts to get us registered at our new address and her insistence that I do my democratic duty. Even then, I stood in the booth thinking aloud. I would rather have my pub landlord running the country than any of the current potential political leaders. Benjamin Disraeli, the great 19th-century British Prime Minister, once said, “Statesmen think of the next generation, politicians think only of the next election. Unfortunately, I don’t see many statesmen from where I am sitting today as our current line-up of Downing Street hopefuls offer new promises to the UK electorate on an almost daily basis. Not only is it difficult to determine who is going to be the least worst leader come May 8th, it is also difficult for most people to understand the platforms upon which these disappointing figureheads are marketing their election manifestos. This excerpt was written in one of my 2015 blogs, and staggeringly enough, the quality of politicians has declined dramatically even from that low level. I’m sure most of the older electorate feel the same, so I am probably not alone in my Victor Meldrew ranting, but it is still incredible to think that the choices we were offered ranged from Theresa May, possibly the most inauthentic and wooden leader in memory, to Labour’s ‘communist’ answer, with three small ‘nothing’ parties in the middle. Backed up by mathematicians like Diane Abbott or manifesto pledge backtrackers like Philip Hammond et al and it is no surprise to see such abject apathy.
Growing up in the 1970s, some of the best-known films were Westerns. The 1960 film, The Magnificent Seven, remains one of the classics of all time. It was shown so often, my brother and I could quote almost every line perfectly. Led by Yul Brynner and Steve McQueen, the seven hired guns fight against fifty marauding bandits who are raiding a small Mexican village. In one memorable scene, Vin (Steve McQueen) is asked by the village’s wise old man, “How is it going?” The line reminds me of the old adage, most recently used by our friend John Hussman: “DO NOT CONFUSE THE DELAY OF CONSEQUENCES WITH THE ABSENCE OF CONSEQUENCES.” In Vin’s anecdote, the consequence of falling off a high story building will soon be tragically obvious. Unfortunately, there have been periods of history where the consequences of past actions are not so immediate, probably none more so than the current one. Most people are aware of the extraordinary monetary response, broadly named Quantitative Easing. This was employed by the world’s central banks to contain the 2008 financial crisis, where interest rates were dropped to zero or even negative and electronic money was created to buy government bonds.
I have recently finished reading a wonderful novel with the odd title, ‘The Goose Samaritan’. Of course, I might well be biased. Having spent most of my life as a voracious reader of every type of publication, my late charge to fatherhood has reduced my reading schedule drastically over the last four years. As a result, this book feels like my first for years that I’ve read purely for pleasure. Secondly, its author is an ex-colleague of mine from the investment banking days of Greenwich Capital. I had the privilege to regularly travel with him, seeing clients across Eastern Europe, producing tales and anecdotes that I will never forget. Lastly, it invoked fond memories of my own travels around the highlands and wilds of Scotland, where I spent three consecutive summers in a campervan with my wife and two border terriers. While the scenery was every bit as magnificent as they say, the remoteness came with another huge benefit – much reduced phone and Wi-Fi connectivity.
Spring, like dawn, often brings new hope or change. The Trump administration is certainly trying to change the way that the US administration operates. Good for some maybe, abhorrent to others. The executive order, Muslim ban II, is being rolled out shortly, no doubt to the same protests as the first. The liberal voices are louder than the masses in ‘enlightened’ countries but I have to wonder how the actual result would be on this matter if it was put to a popular vote in the US, UK or Europe.
Welcome to the first few weeks of Donald Trump’s presidency. There are so many headlines, tweets and images, the media networks are having a field day. We will not be short of news for the foreseeable future, it would appear. In the UK, we are well used to campaigning politicians promising the earth on their election trails, only to conveniently forget about them upon taking office. There was an assumption that many of Donald Trump’s outrageous campaign promises would face the same fate, but we should remember that he is not a life-long politician and has never held a government job. The old rules don’t apply to him. Who knows, maybe he says and does what he actually believes; pretty unique for a politician, no matter how sensational it might appear.
Firstly, I would like to wish all our readers a Happy New Year for 2017. After the huge events of 2016, most of us will be under no illusion that their effects are now becoming only too apparent and we will face a far more uncertain future than in recent times, complete with startling headlines, maybe just a tweet hashtag away. One of the last headlines of 2016 was about the expulsion of Russian diplomats by the US in response to the alleged hacking of the Democratic Party’s campaign members’ emails, and intelligence reports that suggest Russia was behind a state-orchestrated propaganda strategy to help Donald Trump get into the White House. Unfortunately, this story is still growing. Clearly, with ‘The Donald’ in the top spot, we will have to get used to this type of media frenzy.
Long-term readers will have heard my big number maths before, back in 2012. At the time, it was in reference to the extraordinary cost of the London Olympics and G4S’s contract for security at the Games. A million seconds is 11 days, a billion seconds is 32 years and a trillion seconds is 32,000 years. Since Donald Trump’s unexpected election in the United States, there has been an ‘announcement’ of a U$1 trillion infrastructure program, which will include rebuilding roads, rails, shipyards, you name it, in order to ‘Make America great again’! The immediate effects in the marketplace have been truly astounding, especially since the most important thing about any announcement is realising that you don’t really need to have a plan to show anyone straight away. Any stock that is connected with rebuilding – whether it be concrete, copper or something more random – has seen spectacular gains.
In late-September for the last 20 odd years, I have made the three-day trip to the famous Munich beer festival, ‘Oktoberfest’. Ex-colleagues and friends have made the trip over the years, with differing rotation, and many people still tell me it is on their bucket list. The Oktoberfest is the world’s largest festival, with 6 million visitors attending the 16-18 day event, which runs from late-September to early October. Originating from the royal wedding celebrations in 1810 between Crown Prince Ludwig and Princess Therese of Saxe-Hildburghausen, the festival has been an annual event almost ever since. In over 200 years, the festival has only been cancelled 24 times, usually as a result of war.
‘Crisis? What crisis?’ In 1979, these words helped to bring down the Labour government, even though the man who was thought to have spoken them, Prime Minister Jim Callaghan, did not actually do so. But it mattered not, The Sun newspaper’s headline the next day caught the popular impression of a government unaware of a serious state of affairs that had sneaked up on them during the famous ‘Winter of Discontent’. There had been a run on the pound in 1975 and again in 1976 when the UK’s chancellor had to go begging to the IMF for a rescue loan. With rubbish piling up uncollected in London’s Leicester Square, inflation at 10% and almost every worker’s union on strike for higher pay, the UK was in a sorry state of affairs.
In 2006, the film Groundhog Day was added to the United States National Film Registry as being deemed ‘culturally, historically, or aesthetically significant’. Prior to the 1993 showing of the film, I doubt anyone living outside of Pennsylvania was aware of the significance of the groundhog (Marmota monax). While every so often, the ‘average’ film will be repeated on various TV channels, the saying: ‘Groundhog Day’ seems to have stuck with us, with most people understanding the meaning – that of boring repetition, day after Groundhog Day. Groundhog seems a very apt way of describing the current state of play in the financial markets, with reports of US stock markets being in the tightest trading range for five decades prior to last Friday. With the cycle of strong data, Federal Reserve officials talking about imminent interest rises, followed by a piece of weak data, all bets are off the table and back to the elevated plateau in most asset classes, as the monetary policy farce continues to mask reality. Whether it is in the US, Japan, the UK or Europe, news about additional monetary policy stimulus continues to make the headlines. Nobody ever seems to acknowledge that if one country alone employed this strategy, it would be obvious that it was on a road to disaster. On a stand-alone basis, if any country cuts interest rates to zero while they bought huge quantities of bonds, sovereign and corporate, inflation would skyrocket and the currency and economy would collapse.
The Bank of England governor, Mark Carney, took a well-earned rest at the Wilderness festival last weekend where he was seen sporting a glitter eye tattoo and buying a Che Guevara T-shirt. The UK’s central banker had made the bold decision to cut interest rates to 0.25% and add £70bn to the bond-buying programme the prior Wednesday. Concerns about the UK economy in the aftermath of Brexit have been used as an excuse to continue the grand monetary experiment being employed worldwide from the US to Japan, and Mark Carney was not going to be left out. He has led interest rates towards negative territory and devalued the host currency, £. The reality is that most people, employers and employees alike, are reverting to a time-honoured tradition with regard to difficult discussions, such as Brexit. Namely putting their heads in the sand and pretending it is not really happening. Certainly no one, especially the French, wants it to ruin their ‘Grandes Vacances’ on the beaches of ‘Ile de Rey’ this summer. It reminds me of a friend of mine’s divorce a few years ago.
In last month’s letter, I wrote that I expected the EU Referendum to be a distant memory by now. Unfortunately, that is not the case. The unexpected leave vote has changed the landscape with an immediate effect, creating a political vacuum across the parties. Compared to the potential leaders of the Conservatives, the outgoing Prime Minister looks like one of the UK’s greatest ever statesman. It seems ironic to me that the Home Secretary’s failure to control immigration has not hindered her chances of leadership, despite the fact that the leave vote was largely won because of concerns over the current migrant crisis. In the UK judiciary system, the jury is usually made up of 12 people and a majority of 10-2 is required for a guilty verdict, with the judge often pushing for a unanimous verdict in cases of serious crime. With the benefit of hindsight, it would have been much more sensible to have entered into the Referendum with a minimum victory threshold of something greater than a democratic single vote. The fact that the leave vote won with 51.9% from a turnout of 72.2% means that 62.5% of people didn’t actually vote to leave the EU, which certainly justifies some of the anger on the streets of London. The North/South and old/young divides are equally concerning.
Roughly translated this means, “We (the Stasi) have an extraordinarily high level of contact with working people.” The Stalinist perversion of socialism could not have been expressed more clearly. By the time of the next issue of the HindeSight Dividend letter in July, the EU referendum will hopefully be a distant memory. The IG index spread betting odds for OUT have been firmly between 3-1 and 5/2 against for the duration of the campaign. In the last few years, we have seen these spread betting odds provide a more appropriate probability to binary election outcomes rather than the media polls, which frequently show a much tighter contest. Like most of the country, in the Hinde office there is a good split between REMAIN and LEAVE. Unfortunately, the main issue that we can agree on is how pathetic both sides of the campaign have portrayed their stories, coupled with the belief that the politicians have only one real aim – how to remain in power or how to ascend to power. You would have certainly believed that it was David Cameron who was a LEAVE voter and Boris Johnson who was a true European and REMAIN voter if you had read their writing and speeches pre-2015. Yet today, on every media outlet, the main campaigners are arguing potentially against their true beliefs for their own political careers. Plus ca change! You might say.
While not deluging us in typical rain showers, the month of April was colder than we might have hoped for, but the financial markets have potentially made up for all of that. We shouldn’t be surprised at this because, on a 15-year-average, April has the highest average return for UK equities and also the joint highest positive/negative observation skew. Sectors that were heavily beaten up in the last 12 months, such as banking and mining, have rallied impressively but all general developed market equity indices, including corporate bonds, made stellar advances. As part of our general rotational strategy, we lightened up the portfolio considerably with 8 stocks sold this month to take advantage of these gains. We were happy to follow the standard yearly methodology of selling in May and going away, especially when you bear in mind the size of the gains made, compared with the lows in February.
“Don’t panic, Mr Mainwaring” was the catchphrase of Lance Corporal Jones in the long-running TV series ‘Dad’s Army’, a BBC sitcom about the British Home Guard during WWII, set in the fictional south coast seaside town of Walmington-on-Sea. This famous saying was mostly used when there was actual panic raging around. It appears that the markets have taken Jones’s warning to heart. The VFTSE Index (the implied volatility of option premiums in the FTSE) has fallen from 30% to 15% in the last few weeks and the index price is almost back to within a whisker of its starting point for the year. We saw two sell-offs in January and February of 10-12% each and both were followed by a strong rebound. Last year, our theme was ‘Going nowhere’ as we believed that any sell-offs would be mitigated by the zero interest rate policies that global central banks were then pursuing.
In Medieval Europe, which was predominately illiterate and constantly short of physical money, the split tally was a technique used to record bilateral exchange and debts. A stick (squared Hazelwood ones were the most common) was marked with a system of notches and then split lengthwise. With this method, the two halves recorded the same notches and each party to the transaction received one half of the marked stick as proof. This technique was refined in various ways, such as making the two halves of the stick different lengths, until it became virtually tamper proof. The longer part was called the stock and given to the party that had advanced the money. This is where “stockholder” derives from, when we refer to modern day equity owners. The shorter half was called the foil and was retained by the party that had received the goods or funds. Both parties therefore had an identifiable and tamper proof record of the transaction.
The year has not got off to a very pleasant start for the global stock markets, and with 20% declines from last year’s highs, most analysts are declaring that equity markets should be now considered to be in bear markets. They suffered some 10% price drops in the first 3 weeks of January, before recovering a good portion of the losses in the last week. Our theme for 2016 is that most asset classes are not expected to perform well and there is a significant chance of severe losses and wealth reduction across investors’ portfolios.
The events that will be remembered from 2015 seem to start and end in Paris, with the terrorist acts on the offices of the satirical magazine ‘Charlie Hebdo’ in early January and the tragedy in November at the Bataclan theatre. The enduring image of the drowned young Syrian brothers on a Turkish beach will not be easily forgotten, while everything seems loosely linked to the rise of ISIS and the long walk of the migrants seeking a better life in Europe. The UKIP leader, Nigel Farage’s comments – that there were up to 150 million migrants hoping to travel who probably contained some jihadists – were condemned at the time, but his view on this has become better understood as no-one has a solution. The UK general election saw the demise of Ed Miliband and the arrival of the seemingly unelectable figure of Jeremy Corbyn, while in the U.S., the equally unelectable Donald Trump hogs the headlines.
The holiday season has started with the Thanksgiving holiday in the US, and despite the events in Europe recently, people are turning their thoughts towards the Christmas holidays and the New Year. Since last month, the markets have embraced the Federal Reserve’s mutterings and have almost fully priced in a US December rate hike. Two-year US government bonds have risen over 30bps in yield since the October lows that approached 1%.
We are 'Totally Fed Up!’ to steal the title of a section from Views, an excerpt from Money, Macro & Markets. Just as the stock markets seemed on the verge of further downside last month, policymakers baulked and hinted at no rate hike in the US. Of course the timing of a hike was never clear, if it was ever seriously on the table. It's embarrassing. The inconsistency of message is breath taking but then the Fed is clearly choosing to look at the wrong dials by which to read the stability of the economy. If your dials are wrong how can you levers to correct it, be anything but impotent?
On Monday 24th August, we looked on course for Black Monday II, the first of course being the infamous October 19th, 1987 stock market crash, which saw some 22.61% or 508 points of the Dow Jones Industrial Average wiped out. This time we witnessed a 1,200 point decline from the close on the prior Friday, but of course on a percentage basis this was far less in magnitude, at only some 7%. However this time around the market had been falling for a few days and appeared largely driven by the continued collapse in the Chinese stock markets. It could be argued that this Monday could be seen as a culmination and the cessation to selling. We don't believe so.
Salvador Dali, the Spanish surrealist painter, epitomised his craft. His manic expression and famous moustache made him something of a cultural icon for the bizarre. In fact, his very being epitomised the surreal. Ben first used the image above in a presentation at the Gold Symposium, Sydney in 2011, entitled, 'Singularity - Transcendent Money'. He thought that if the painting had been crafted today, it would represent the "disintegration of persistent MONEY".
On the 1st January 1994, the PBoC moved from a dual-track currency system to one transparent reference rate for the renminbi against the USD, the Hong Kong dollar and the Japanese yen based. This was based on the weighted average price of foreign exchange transactions of the previous day’s trading, marking a new stage for the exchange rate regime. China had taken both its first major foreign exchange wager and step to Yuan liberalisation. Over two decades later, on the 11th August 2015, the Yuan experienced another sudden depreciation. The PBoC lifted the daily USD/CNY exchange rate fixing to 6.2298 – a 1.86% devaluation compared to the fixing of 6.1162 on August 10th. To put this in perspective, just in case we get lost in the hyperbole, the 1994 dual-track system amalgamation of the official rate of 5.8 and the swap market rate of 8.6 was effectively equivalent to a rather hefty 33pc decline of USD/CNY. So it's not so much the magnitude of the devaluation that interests us this time but the cause and intent.
Red Capitalism is thriving. The Communist Party has managed to authenticate and legitimise the gambling habits of a billion plus people, that is its very own party members. They have officially sanctioned a stock investment boom, providing untold riches to its people. They have instigated one of the greatest feats of financial engineering, barring the US sub-prime heist, to mitigate risk by implementing the largest debt-to-equity swap in history. They have provided all of the debt ridden SOEs with a means of re-capitalising their ailing balance sheets by shifting their debt into equity and transferring the risk from their own (and by definition the State's) balance sheet onto that of the people's very own household balance sheet. So lucky are Auntie and Granny Wang that they sang on brokerage floors to herald the benevolence of their leaders.
Red Capitalism is thriving. The Communist Party (CP) has managed to authenticate and legitimise the gambling habits of a billion plus people, that is its very own party members. They have officially sanctioned a stock investment boom, providing untold riches to its people. They have instigated one the greatest feats of financial engineering, barring the US sub-prime heist, to mitigate risk by implementing the largest debt-to-equity swap in history. They have provided all of the debt ridden SOEs with a means of re-capitalising their ailing balance sheets by shifting their debt into equity and transferring the risk from their own (and by definition the State's) balance sheet onto that of the people's very own household balance sheet. So lucky are Auntie and Granny Wang that they sang on brokerage floors to herald the benevolence of their leaders.
If you pick up any newspaper or journal of late we are bombarded with Grexit and contagion risk undermining the European project which was founded in 1957 with the Treaty of Rome. There have been many bitter political disputes across Europe on the merits of membership to its Union, no more so than in Britain. In the next two years the British will have their say on whether they would like to remain or not in the Union. But perhaps the bigger question is the viability of the Euro and with it the EU as it currently stands. Many economic commentators have argued the Euro should not exist as it’s currently structured. We find it hard to disagree.
On May 7th, the UK witnessed what we felt would be a 'humdinger of a general election' but no one can deny that when the results came in this definitely wasn't the case. Democracy won this month, with 66.1% of the electorate (some 46,424,006 people) turning out to vote. It was the best turn out of this millennium, although not historically significant. The 56th Parliament of the United Kingdom will be run by the Conservatives, albeit the election was won by a narrow majority, the increase in votes and seats from the previous election was the highest since 1966 and 1983 respectively.
This month HindeSight Investor Letter is brought to you by one of the most thoughtful commentators on ‘Money, Macro & Markets’ – Sean Corrigan. Having predicted the boon and bust; a rarity among predominately long-only managers, he recently left his post as Chief Investment Strategist at Diapason Commodties Management, which ran over US$7bn in dedicated commodity strategies.
1981 was an auspicious year and one that all Greeks may wish had never happened. It was the year their mother country entered into the European Community, which later became the European Union. Grexit has been all the talk over the past few weeks. Will they (re)-pay the IMF debt payment or won't they – well, it appears they did. Melodrama over again, for now.
The former Economic Adviser for the Bank of International Settlements (BIS), speaks with Sean Corrigan, Cobden Centre contributor and its Editor Max Rangeley. At Hinde Capital, investors know we consistently strive to provide an intellectually honest source of information on the role of money in markets and its implications in both an economic and social context. Our role as fiduciaries is to grow and preserve our client's wealth using absolute return and diversification strategies. Dynamic risk and money management define our strategies not economic ideals. However to understand the risks associated with the global economic system, today, one must fully comprehend that the credit cycle is the business cycle. Policymakers' forward guidance, control of money and credit transmissions pose the single greatest threat to achieving a stable and sustainable economic future. We do not have such stability today.
PJ O’Rourke, The American political satirist, once said: “Everybody wants to save the earth; nobody wants to help mom do the dishes.” This month in Views, Ben looks at how ‘Smart’ power and the realities of House of Cards, politics and debt is redefining what he sees as a revival of the realpolitik movement today. No dwelling on the dishes here! Mark gets down and dirty introducing several interesting dividend plays – a Chilean family heirloom, a sugar processor to sweeten the HindeSight Dividend portfolio # 1 and invites subscribers to pull up a seat to participate in the sound growth of an online furniture company developing stores around the UK.
The former Economic Adviser for the Bank of International Settlements (BIS), speaks with Sean Corrigan, Cobden Centre contributor and its Editor Max Rangeley At Hinde Capital, investors know we consistently strive to provide an intellectually honest source of information on the role of money in markets and its implications in both an economic and social context. Our role as fiduciaries is to grow and preserve our client's wealth using absolute return and diversification strategies. Dynamic risk and money management define our strategies not economic ideals. However to understand the risks associated with the global economic system, today, one must fully comprehend that the credit cycle is the business cycle. Policymakers' forward guidance, control of money and credit transmissions pose the single greatest threat to achieving a stable and sustainable economic future. We do not have such stability today.
With less than 90 days to go to the UK General Election in May, the phrase we hear banded about most often is that the markets and UK economy will experience ‘unprecedented levels of uncertainty’, both before and after the Election.
As we draw to year end we begin to look forth to 2015 and another year ending in 5. In market cycle analysis there is a pattern known as the ‘decennial pattern’ – it refers to the fact that years ending in the number 5 are up years for the stock market.
We are in the butterfly vortex of a momentary illusion of ‘hyperinflated’ wealth - for the value of money is sinking rapidly - destroying the purchasing power of the global majority. Markets have a memory and from the first moment central banks expanded their balance sheets the flap of Lorenz’s wing has cast a shadow over financial and economic stability. In this HindeSight we endeavour to highlight where the echoes of monetary history are manifesting themselves in systemic risk across the globe.
In October 1987, the Dow Jones Industrial Average plunged more than 20% in one day, an unlikely 20-standard deviation event whose probability of occurrence is less than one in ten to the 50th power. Fast forward 27 years and global developed stock markets experienced a fall of 10 to 15% over a course of 3 to 4 weeks, with a rebound in some markets as ‘stellar’ in magnitude as the European Space Agency’s (ESA) Rosetta mission success to land a robotic space probe on the surface of a comet.
William Thorndike in his fascinating book ‘The Outsiders - Eight Unconventional CEOs and Their Radically Rational Blueprint for Success’ examined one of the most important aspects of running a business a CEO must undertake: Capital Allocation. He summarised how a CEO deploys capital in order to best utilise cash flow generated from his or her business operations.
The presentation highlights the main elements of the SG Hinde Dynamic UK Equity ETN (50% Hedge) an Exchange Traded Product co-launched with Societe Generale and ourselves which replicates the Hinde Dividend Value Strategy (50% Hedge) based on stock selected from the FTSE 350 using the Hinde Dividend Value Matrix™, a proprietary stock-rating system. This is suitable for Sophisticated Retail and Professional Investors.
Many investors seek out income paying stocks simply because their yields are attractive compared with zero bank savings rates and the negative real yields achievable on fixed income assets. Whilst most investors see the short-term yield pickup potential, many have not fully appreciated the power of dividends to provide long-term, real total returns. The impact of dividends on equity portfolios has not diminished for decades, even centuries. It is only the whims and fads of investors that change. The tantalizing proposition of wealth changing returns from stocks offering the latest new thing has enticed many investors to risk too much in speculative ventures over the years (think Dot-Com bubble). The casualty of this interest is, invariably, a disinterest in dividend-paying stocks, considered boring and unsexy. In the short-term, dividend paying stocks are almost always boring, but in the long run the power of dividends is very sexy.
It’s getting hot up here! Equities are they toast? We have rung the bell and called time on global equity markets, albeit we are selectively selling key indices. We love the Internet, Social Media, Gaming, and software applications designed to run ‘ideas’ on smartphones and tablets. We love their creativity and productivity but we don’t love the public valuations of their stocks. They have entered into the ‘APP’mosphere.
The global crisis is a financial crisis driven primarily by global trade and capital imbalances. This is the macro theme we have pursued these past 7 years. We believe the global crisis is in full swing again and asset prices are in danger of falling globally. Money is less effective at catching the falling knife. Emerging market countries are exhibiting the signs of crisis-like price action associated with deteriorating balance of payment balances, even though many have built up significant foreign exchange reserves. Investors and policymakers do not believe this is the beginning of a major EM contagion crisis. They are lulling themselves into a false sense of security. They see the EM market tremors, and do not fear a re-run of the EM crises of old. They are right. This is not (just) going to be an EM crisis. Recent events portend a far more serious crisis is at hand; the unravelling of our global monetary system. Please click on the button below to read the full report.
Following the seismic events in the gold market last week, the question on everyone’s mind is whether or not the gold bull market is over. Such an utterance seems glib in the face of 8,000 years of history that suggests otherwise. Of course, there is a time and moment to own gold. That time is still now. So you will not be surprised to hear us say, no it’s not over; it’s just getting interesting. Another question that is on everyone’s minds or if it isn’t, should be; was the gold market sell-off a product of continued and escalated manipulation? In this latest HindeSight letter we will explore the answers to both these questions,and by understanding reality we can begin to understand whether gold can reassert itself in its justifiable role as an antidote to the current fiat currency system.
In the Central Bank Revolution II - Chasing the Dragon, we illustrate how the effects of central bank monetary policy, today, have already distorted the term structure so monstrously that assets have been driven to yields more akin to those of holding money. The yield grab has extended into riskier and riskier assets and structures, resulting in a diminished return profile that is not compensated for by the falling credit quality, and the heightened duration risk. The stage has been set for capital losses, as once again investors indulge in levered products, with suspect collateral value, and invest in plain vanilla assets with no margin of safety.
Our latest HindeSight Investor Letter - The Central Bank Revolution I (Well ‘Nominally’ So) is the first of a two part series. Part 1 examines how central bankers have embarked on a loosely coordinated effort to fight the global debt problem which has been stifling growth. Omnipotent governors, Bernanke, Carney, Draghi, Svensson, and the new BoJ governor are to take a more aggressive and activist role in pursuing a framework for growth and inflation by seeking an alternative way to conduct monetary policy. It is in our opinion as significant a moment as Volcker’s appointment to the Federal Reserve chairmanship in 1978. However, we consider this an ‘inverse Volcker’ moment.
Ben Davies CEO, concentrates on the salient relationship between Gold – Money and Debt at an evening with Wharton Business School Alumni
Whilst Spain and the Troika are engaged in a ‘Mexican stand-off’ over conditionality of a potential bailout of Spain, the ECB monetary policy meeting looks set to be yet another historic day for the viability of the Eurozone and the euro itself. We felt it was an opportune time to introduce our and Elevation LLC’s macro partner Variant Perception’s Primer on the Euro Breakup.
A report based on a recent speech given by our CEO Ben Davies at the Munich Value Conference. Ben explores the theory of what is value, looks at the world of yesterday and today and the subjects of debt liquidation and financial repression. The full presentation can be found below in the 2012 HindeSight archive reports.
A presentation of a recent speech given by our CEO Ben Davies at the Munich Value Conference. Ben explores the theory of what is value, looks at the world of yesterday and today and the subjects of debt liquidation and financial repression.
Eyes Wide Shut – UK Economic Repression and an End Solution. In the second part of this series Eyes Wide Shut – Economic Repression and End Solution, we examine how the UK’s economic freedom has come down to a circuitous relationship between the BoE, the banks, bondholders and householders. Each component threatens to undermine the other. Finally we offer some potential solutions.
Eyes Wide Shut – The UK Hitting the Wall is part I in a two part series on the state of the UK’s financial health. We wish to outline the gravity of the situation in which the UK finds itself. This nation’s ‘wealth’ is borne out of an illusionary monetary system that has utilised ‘cheap credit’ to underpin asset prices. This pernicious and self-perpetuating credit based system has created wealth, which as we will show is totally unsustainable. There is an ever present and real danger that the debts of the UK will not be tolerated by financial participants. The UK faces a very significant debt issue which threatens to become a full blown sterling crisis as foreign creditors exit the UK bond market. This is clearly not an eventuality that markets are currently assigning any probability.
In the latest HindeSight Investor Letter we examine the disparity of different nations' wealth, and discuss the common feature of all wealthy nations - economic freedom - and how this underpins the sustainability of a prosperous economy. Property rights are key to the existence of economic freedom, and thus property and credit cycles, which are themselves closely linked, are integral drivers of the broader business cycles that buffet economies.
Investors will face considerable difficulties in allocating funds successfully in the coming years. Zero interest rates and unconventional monetary easing across much of the world, coupled with anaemic growth and low future potential will be the status quo. They are a direct function from the fallout of over indebted sovereigns and private-sector balance sheets. Distorted interest rate horizons such as we experience today will serve only to muddy the waters of investment and economic policy for many years to come.
The purpose of this piece is to re-examine the viability of the European Union one full year on from when we wrote our HindeSight Letter December 2010 - "The Euro Brady Bunch." It would be fair to say that you could sum up that piece with the quote we gave from the economist Herbert Stein, "If something cannot go on forever, it will stop."
Gold's recent 8% pullback since December 1st has prompted the usual wave of portentous headlines. We'd like to outline our, perhaps slightly more festive (if you're a gold investor!), views here.
Now is a very pertinent moment to remind investors about Hinde Gold Fund’s structure. The recent collapse of MF Global draws attention, once again, to the many shortfalls in the financial system.
KEY CONCEPTS: Singularity, Exponential vs Linear Growth Trends, Law of Accelerating Returns vs Law of Diminishing Returns, Financial Oppression, Internet Reformation, Transcendent Money, Monetary Singularity
Gold Symposium, Sydney Australia, November 2011 – Keynote Speaker. This HindeSight letter develops in full some of the ideas raised in this address. KEY CONCEPTS: Singularity, Exponential vs Linear Growth Trends, Law of Accelerating Returns vs Law of Diminishing Returns, Financial Oppression, Internet Reformation, Transcendent Money, Monetary Singularity
It is an honour and great pleasure to be here before you all today. For those who have the good fortune of not knowing me, my name is Ben Davies. I am the co-founder and CEO of Hinde Capital, a UK investment management company. I want to offer you what I believe to be a truism. A golden truism.
Gold has risen 19% annualised since 2001 to [present in a basket of currencies. This is a statement not just about the US dollar reserve currency status this is a statement about the collateral worth of all fiat or paper currencies. Gold is experiencing global demand on a scale unprecedented in history. It is quite simply experiencing a re-birth, based on a universal change of attitude.
Financial markets provide constant fascination for individuals; each and everyone one of us derives, often subconsciously, certain needs or outcomes from them. These are usually personal and specific to the individual, but every now and again market participants can observe imitative or herding behaviour which can lead to the phenomena widely known as 'bubbles'. Bubbles usually reflect a disconnect between fundamentals and human perception. The outcome of such disequilibria can lead to severe corrections, or even a 'crash' as the bubble bursts.
'Freedom Fighters'- the phrase invariably conjures romantic notions of charismatic individuals mobilising oppressed populations against tyrannical regimes. Iconic images of Che Guevara, as immortalised in Andy Warhol inspired T-shirts, have become the ubiquitous countercultural symbol of the modern day freedom fighter, most notably amongst today's young.
This letter is intended for pension/wealth managers, and individual investors alike, to highlight the paradigm-shift that will be required in attitudes to investing in the aftermath of the financial crisis. Hopefully, if we achieve anything, we can help people in the future to avoid the potential outcome of . . . . THIS!
We wish to highlight not all but some of the “fears” that keep us awake at night, and illustrate why right now is not the final act for gold. 2011 could be an explosive year for this most illustrious of metals. We do not wish this, as we prefer the orderly ascent of gold to protect our investor base. We would not wish gold to become the final bubble of so many that have marred the last two decades and thereby undo its unique monetary properties, as it is once again cast aside.
In our October piece 'The World Monetary Earthquake' we used Herbert Stein’s words in reference to the parlous state of Japan. How alarmingly prescient this aphorism has become for so many sovereign nations, and none more so than the eurozone. European policymakers are not impervious to the implications of a periphery default on West Europe's banks, ie a full blown European banking crisis with all the global ramifications it entails. Germany and France will ensure that financing spigots keep the illusion of this particular fiat ponzi scheme.
The world has too much debt. In the book of Leviticus (Old Testament), a Jubilee year is mentioned to occur every fifty years, in which slaves and prisoners would be freed, debts would be forgiven. Today there is no Jubilee.
Murmurings of such 'beggar-thy-neighbour' currency devaluations have once again sprung up amongst the financial literati and rightly so. Better late than never. The truth be told is that we have been living in a highly unstable world even more so than under BW I. The dollar pegs, primarily the Asian renminbi dollar semi-fixed exchange rate, what most refer to as Bretton Woods II, have (arguably) been responsible for the financial friction we observe today.
I've been invited here tonight primarily to convey my experiences in the markets. I see this section of the program is titled "The Essentials." I have taken that to mean I am here to talk about my experiences at the "coal face." For me the coal face is the marketplace -- the culmination of buyers and sellers. I would like to share my relationship and experiences with the coal face -- in particular the "gold face."
As a fund manager I have experienced at first hand the irregularities that have corrupted the gold market. These irregularities run deeper than just micro distortions of the daily movements in the gold market; they are a symptom of something much bigger ‐ War.
Gold Wars are between governments and gold. This ultimately restricts the constitutional rights of the people. Gold is the vital barometer of the health of a nation’s currency. The suppression of gold by government allows them to mask the mismanagement of their currency.
Money can lose its value through excessive abundance, if so much silver is coined as to heighten people’s demand for silver bullion. For in this way the coinage’s estimation vanishes when it cannot buy as much silver as the money itself contains…The solution is to mint no more coinage until it recovers its par value
Precious Metal Exchange Traded Funds (ETFs) have become a popular way to invest in gold and silver. In this presentation we discuss many of the important issues we believe investors should be aware of before buying these products. For our purposes we have chosen to focus principally on the State Street managed SPDR Gold Shares trust (GLD), it being the largest precious metals ETF, with a market cap of almost US$50bn.
As a nation we have been living on debt paid for by watered-down money for decades, but so subtle was it at first, we were none the wiser. But when the pain of addiction began to be felt in 2008, we began to understand the lie. And then we went searching for the real stuff. Money for sometime has been worth what government decrees it to be worth. We trust in our duly elected government and unelected central bankers not to subvert the value of our money. It is the value of our day’s labour, by which some is paid in taxes to fund our social obligations.
Gold seems to engender all manner of emotions, and there appears to be no middle ground. Indeed the skew of hate from most media gets more pronounced at every new high. Indeed, every interim peak in gold's price over the last few years has been accompanied by a cacophony of voices proclaiming it to be overvalued. The inevitable retreats that have followed have been short-lived, briefly silencing the critics. However much to these critics’ consternation gold keeps making new highs, and with it their strident chorus of disbelief echoes out even more fervently.
The most important thing about money is to maintain its stability…You have to chose between trusting the natural stability of gold and the honesty and intelligence of members of the government. With due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold.
Gold equity funds prior to the evolution of pure gold ETFs, were primarily the only vehicle for those seeking an investment in the precious metals sector. Most investors see “gold” in the title of a fund and invest believing they are aligned more or less with the gold price without realising there is inherently more risks associated with such funds relative to funds that align themselves to the bullion price. We have been long term supporters of one of the largest and most successful precious metals funds.
If one good is more marketable than another—if everyone is confident that it will be more readily sold—then it will come into greater demand because it will be used as a medium of exchange. It will be the medium through which one person can exchange his product for the goods of others. When a commodity is used as a medium for most or all exchanges, that commodity is defined as being MONEY.
Established in March 2006, Hinde Capital manages a gold fund for institutions through to high-net-worth individuals (the minimum investment is US$100,000). This fund is held and managed through Hinde Gold Fund Ltd, which is incorporated in the British Virgin islands and described as an open-ended multi-class investment company.
Hinde Gold Fund vs Physical Bullion and ETFs - Hinde Capital seeks to offer preservation of capital against erosion of the purchasing power of money, through an investment in Hinde Gold Fund. Capital growth is by necessity an important yet secondary objective.
Gold engenders a diversified range of opinions and emotions unlike any other asset class. Misconceptions abound; it is an inflation not a deflation hedge. It is a portfolio diversifier. It is money, a currency, a store of value and a safe haven asset. We define and challenge the validity of all these beliefs. Thematically using the theory of the Austrian Business Cycle we explain why gold and equities rally together Tactically we observe the gold seasonality, now, then and for the future
Understanding how money is created is fundamental to an understanding of this financial crisis. The Creator of Money, the Money Creature or known more formally as the Central Bank is a phrase we have purloined and bastardised from Griffin’s scintillating book The Creature of Jekyll Island – in reference to the Federal Reserve Bank and its system of spawning money out of thin air.
We are on the “cusp of a New World Order” as Sean Corrigan (Diapason Commodities Management) put it. On the precipice of a mind bogglingly fast financial and hence economic descent, the re-appraisal of Darwin’s thesis “Survival of the Fittest” appears so readily apt. In truth the phrase “survival of the fittest” was coined by the classical liberal economist and political theorist of the time, Herbert Spencer. In his Principles of Biology (1864), Spencer drew parallels to his economic concepts with that of Darwin’s theory of evolution, namely natural selection.
In Medieval Europe which was predominately illiterate and constantly short of physical money, the split tally was a technique used to record bilateral exchange and debts. A stick (usually squared Hazelwood sticks were most common) was marked with a system of notches and then split lengthwise. This is where “stockholder” derives from when we refer to modern day equity owners. The shorter half was called the foil and was retained by the party that had received the goods or funds as such that both parties had an identifiable and tamper proof record of the transaction.
There has been a tacit belief in the status of the US government. This nation would stand for sound finance; growth with price stability; to such an extent that no other nation could compete for such a hegemonic crown. Recent events have awoken foreign nations to the suspect nature of US finances, and the credibility of the US is now under severe scrutiny by these nations. We are witnessing the bursting of the largest Credit Bubble in modern economic history.
Silver Finger: This was the title of a 1980 Playboy article that makes for an astonishing read. Investigate for yourself on the link above. It gives a powerful insight into the motivations behind one of the largest financial bubbles. It would appear far from being motivated by greed, Bunker Hunt was possibly motivated by paranoia (justifiably so) and his desire to remain out of paper assets. In principle he was right in execution, just that he underestimated the Power of the State.
Under GORie, bull markets move in phases and it would be far to say Food commodities have had an incredible surge. But remember this was from extremely low levels. But it would be fair to say that some investors are clearly Smokin’ too much POTash. It seems Investors now have a case of the Munchies”- Sorry. Food is “in” and all by products that help grow it are de rigueur, hence the explosion in fertiliser and Potash companies. One of the constituents of the MOO ETF is going “HIGH” “HIGH” “Higher”.
Hinde Gold Fund’s primary aim is to provide our investors exposure to the precious metals market through a highly liquid, actively managed fund with low leverage levels. The turbulence of rapid globalisation, in our view, requires a significant allocation of resources to tangible assets like gold, which, over time should provide capital protection and appreciation. Hinde Gold Fund was created to meet the needs of investors as we head into a volatile monetary landscape in forthcoming years.
Are you an Inflationist or a Deflationist? A number of comments and questions get levelled at us everyday concerning the outcome of today’s macro events. Are we to experience deflationary or inflationary repercussions from this current downturn in the US, throughout the world? Can we experience both, have we stagflation and will we see hyperinflation?
“Make Good Use of BAD RUBBISH” was the wombles Mantra. Clearly they were ahead of their time. The 70s were a difficult time for most people in the UK , culminating in the “Winter of Discontent”. This was the term used to describe the British Winter of 1978 to 1979 during which we saw widespread strikes by the trade unions demanding higher pay to compensate for the inflationary cost of living. The BBC (British Broadcasting Corporation or Auntie as it’s affectionately called) used the Wombles cartoon as a wonderful piece of socialist propaganda.
Stagflation is a condition of the economy that is as inconvenient as the word itself is inelegant. “Stagflation is a condition in which the price level is rising despite the existence of substantial unemployment. “It connotes the simultaneous occurrence of economic stagnation and comparatively high rates of inflation.
Hyman Minsky (1919-1996) a post-Keynesian economist best articulated the process that leads to a potential credit crunch. “Stability breeds instability”. The longer a period of economic stability lasts, the more society moves towards taking more risk, they borrow excessively and overpay for assets, until the entire economy is a house of cards, built on excessively easy credit and speculation.
We invariably do not fear the predictable but we fear the volatile, unpredictable black swan and when that fear manifests itself in mass participation, hysteria and panic take over. The events of Northern Rock seemed hysterical, although in reality it was quite rational as Mervyn King declared to the Treasury select committee for people to protect their savings, (even if they did not quite understand why they had got to this place). By having an investment in a tangible asset such as Gold we hope to protect you and ourselves from this Black Swan.