Feb/12 – 12 months on and I don’t think we are doomed at all
I saw this cartoon in one of the papers over Christmas and thought it was up to date; it transpired that it was from a year ago at the start of 2011.
It got me thinking, here we are 12 months later and I don’t think we are doomed at all.
Some sections of the press would have you believe that we are. During the volatile periods during the second half of 2011 you would see regular headlines about the billions that were wiped off the value of the stock market when the FTSE 100 dropped by 100+ in a day. When, several days later the FTSE jumped by the same 100+ there was no headline stating that billions had been added.
Interest rates speculation was also a constant theme during the year with increases predicted in March and then again in May. They haven’t increased yet and they don’t look like they will in 2012.
The Simple Solutions view of the global economy is that overall it is doing OK, slower than we would like. We previously predicted the first signs of growth in the Autumn of 2011 and whilst this stalled because of the Eurozone crisis that kicked off in August we still believe that there are positive signs.
Having said that we cannot ignore the Eurozone issues, there are still massive problems with some of the European banks, we believe consolidation is inevitable. Greece is almost certain to default at some point and that means one of the phrases of 2011 will return when some of these banks will have to “take a haircut”
The good thing about these problems from an investment point of view is that we already know about them. This means that the markets have factored these issues into their prices.
There will, we are sure be the odd “thunderstorm” when things look black for a period and when issues are mainly politically driven this can creates problems because of different different agendas. This is summed up by the Luxembourg politician Jean Claude Junker who said “We all know what to do, we just don’t know how to get re-elected after we’ve done it.”
Nevertheless we believe that Europe will survive largely intact and that whilst the UK can never escape the effect of what is happening in Europe we do have some protection from the pound. Overall we expect returns to be low from the UK.
Historically we have looked across the “Pond” for leadership and a recent headline caught my eye.
Low interest rates here to stay, says US central bank.
There are now obvious signs of a recovery in the United States, the housing market seems to have bottomed and the central bank announced that interest rates will remain close to zero till at least 2014. We expect Mr King and the Bank of England to have the same strategy with interest rates in the UK.
This is also a US election year and the political agenda will affect this as well with President Obama making popular decisions to get re-elected, these decisions should further stimulate their economy.
The other giant economy, China, continues to grow. They did have an issue with inflation but the State owned banks are able to control this by restricting the money flow. Overall, with continued positive growth there are investment opportunities available via China.
Whilst emerging markets as a sector underperformed in 2011we still believe there are growth opportunities, especially in Brazil with the Olympic and the World Cup taking place in the next few years that will further boost their ecomomy.
Our portfolios have consistently invested in the commodity sector and whilst there have been warnings that gold had peaked even 2 year ago we have maintained exposure to the BlackRock Gold and General fund and whilst returns have not been as good a previous years they have been reasonable with gold maintaining its value at near maximum levels.
We did add the First State Global Listed Infrastructure fund to this sector and have been rewarded for this. The fund invests in areas that will prevail during a downturn such as toll roads, ports, railways and water.
In summary, we expect returns to be positive in 2012 but we, like the politicians, are hedging our bets a little by positioning our portfolios slightly defensively with an increased exposure to Bonds. This will be reviewed at the end on Q1 and we shall let you know the outcome of that review at that time.
Don and Rab.
If you would like to discuss how we can help you to manage your investments please contact us.