A Different Perspective
Asking the Right Questions
The Investment Challenge: In One Chart
If I was asked for one chart to sum up the current investment environment, the below would be it. This chart shows the German yield curve, which plots the yields on German government bonds with maturities ranging from 1 month to 30 years. The yellow line marks zero yield, highlighting the fact that German AAA bonds with a maturity of up to 9 years now offer a negative yield.
Rightly or wrongly, the policies of the European Central Bank – cutting interest rates to negative and buying bonds – are having massive implications on traditional savers and pensions. Cash deposit rates are effectively zero, or marginally negative for members of pension schemes, forcing people to save more for the same wealth objective. At the same time, the cost of purchasing an annuity to guarantee a pension income in retirement has soared.
This has pushed more investors to take additional risk in search of return, the extent of which they may not fully understand. The blind reach for yield only serves to exacerbate any equity market correction, as less informed investors are more prone to panic.
To deal with this challenging environment, people should reassess their own risk and return objectives, set realistic goals and ensure their existing investments remain suitable.
Interview Series: Colombia as a place to invest
As I have mentioned previously, I met with officials from Colombia’s Finance Ministry during my trip to the country in March. While the focus of our meeting was on the fundamentals of the Colombian economy, I was keen to learn more about the specifics of Colombia as a place to invest and the resources available for an Irish company/investor who would like to explore opportunities in the region.
On this front, they kindly put me in touch with PROCOLOMBIA, the agency responsible for promoting foreign investment in Colombia. I spoke with Andes Sarmiento, their Investment Specialist based in London, to learn more about what the country has to offer and how ProColombia can assist Irish investors and Irish companies looking to explore opportunities in Colombia, but also as a gateway into the relatively untapped Latin American market. Read More
Forecasting: revisiting my Premier League outlook
At the turn of the year I wrote about the challenge of forecasting, an art that we are faced with in all walks of life. What makes it particularly difficult in the world of economics and financial markets is that we are all part of the very system we try to forecast on, where our decisions have an impact on the end outcome.
My other main interest, football, poses its own challenges when it comes to forecasting. While there are much less variables at play, predicting football results on a Saturday is notoriously difficult. How many accumulators have gone awry because of a last minute equaliser or that ‘surprise result’? I know I’ve had a few! Read More
Weekly Market Update: May 9th 2016
Market Recap
Global equity markets continue to struggle, with all of the major equity indices ending lower for the week. Europe and Asia underperformed the US, with the currency backdrop playing a huge part in the divergence of returns this year. Read More
Weekly Market Update: May 3rd 2016
Market Recap
Global equity markets were back in the red last week, after ending on a sour note Friday. Concerns over the global economy have not gone away, while earnings season has so far been mixed, most notably for some of the high profile technology companies who have failed to meet lofty expectations. Apple, the long term market darling, is now the “Dog of the Dow”, the worst performing stock in the Dow Jones Industrial Average in 2016.
The fickle markets were also put out by the Bank of Japan’s (BOJ) decision not to add further monetary policy stimulus on Thursday. Rather than introduce new measures at their latest monetary policy meeting, Haruhiko Kuroda, BOJ Governor, and his colleagues choose to hold fire and allow time for their previously announced measures to take hold. For a world hooked on monetary stimulus, there will never be enough stimulus. Read More
Weekly Market Update: April 25th 2016
Market Recap
Global equity markets moved higher last week while government bond yields rose as investors have put the plethora of risks to one side, preferring to take a glass half full view of the world. The sense of panic that pervaded markets in the early part of the year has completely dissipated. The much quoted CBOE Volatility Index (VIX), the so-called ‘fear index’, a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices, is now back near record lows, down -27.40% YTD. Read More
BREXIT – “Staying friends” after a breakup
The risk of BREXIT – Britain exiting the European Union (EU) – looms large with the upcoming referendum on Britain’s membership of the EU, on June 23rd. Can Britain break European hearts while at the same time staying friends? And more importantly can Europe stay strong after the hole left by the loss of their long term partner? How the relationship ends will determine the impact of BREXIT. Read More
Central banks and the certain uncertainty paradox
“Uncertainty is an uncomfortable position. But certainty is an absurd one.” – Voltaire
US Federal Reserve Chair Janet Yellen lifted markets midweek by pouring cold water on recent comments from a number of regional US Federal Reserve Presidents. In a speech at the Economic Club of New York – entitled “The Outlook, Uncertainty, and Monetary Policy” – Yellen took the opportunity to “explain why the Committee anticipates that only gradual increases in the federal funds rate are likely to be warranted in coming years”.
While equity markets reacted positively to Janet Yellen putting her colleagues back in their hawkish box on the possibility of early rate hikes, it may also be worth considering the source of her dovishness. Her first concern relates to “the pace of global growth”, with emphasis on the influence of China and how smoothly they will be able transition “away from investment toward consumption and from exports toward domestic sources of growth”. Yellen’s second concern raised in her speech is around “the prospects for commodity prices, particularly oil”, with further declines potentially forcing increased layoffs and cutbacks in government spending in oil producing countries. Read More
Irish policy parallels to be found in Colombia
Article appeared in The Examiner March 29th 2016
While I have only been loosely following financial markets over the last three weeks – after all in the short-term it is all just noise – my three weeks in Colombia have provided me with new perspectives and insights that I look forward to sharing in the coming weeks.
It is an exciting year for Colombians, as a peace agreement nears that will bring an end to a 50-year conflict with the FARC guerrilla movement, or Fuerzas Armadas Revolutionaries de Colombia-Ejército del Pueblo, to give its full name, which in English translates to Revolutionary Armed Forces of Colombia-People’s Army.
However, having an economy heavily dependent on oil exports, the collapse in the price of its black gold has brought Colombia’s economic challenges into sharp focus, with a National strike on March 17th taking place to protest the government’s socio-economic policies. Read More
Quotes from “De Brevitate Vitae” (“On the Shortness of Life”)
Over the weekend I read “De Brevitate Vitae” – known as “On the Shortness of Life” in English – an essay written by a Roman Stoic philosopher called Lucius Annaeus Seneca, to his friend Paulinus. Described as a “moral essay”, Seneca provides a thought provoking perspective on how we look at life, drawing attention to man’s wasteful nature when it comes to the most valuable commodity of all, time.
Amazingly, over 2000 years have passed since the writing of this essay, but Seneca’s insights have endured. In fact, one could argue that his wisdom resonates even more in Western society today, a consumer driven world shaped by corporations, social media obsessed, where living in the present is becoming a lost art.
Below I have shared my favourite quotes including my own brief thoughts on these powerful words: Read More
