Broomer's Blog

This Time It’s Different

It is oft said that the most dangerous words in investment are that 'this time it's different'. The phrase resonates through stockmarket history as experts pontificated that old rules of valuation no longer apply and the current crisis/situation bears little similarity with what occurred in the past. The words were widely echoed during the 1990s tech boom, as they were during the depths of the bear market of 2008. Since the days when it was first formally identified by Graham & Dodd, the value philosophy has proved its worth and presented investors with one of the few reliable ways to earn super normal returns, since valuation levels typically revert to the mean. Indeed such is our respect for its power, it plays a principal role in Square Mile's tactical asset allocation process.

Reasoning that things are different this time is typically an expensive mistake. So, I almost fell off my chair the other day when I read that no less an authority than Jeremy Grantham was postulating that valuations may be reaching a new, higher plateau and that "it can be very dangerous indeed to assume that things are never different".

Continue reading »

Trump is going to end up with kimchi on his face

Donald Trump really does not need anyone's help to make him look foolish; he seems perfectly capable of doing this all by himself. Over recent weeks, I have been following his comments on North Korea with disdain and North Korean President, Kim Jong-un, must be relishing the propaganda victories that Trump has continually presented him.

My wife was born in Seoul, so I tend to follow events on the Korean peninsula with more interest than many. Events north of the border are often disturbing, sometimes weird and occasionally comical. This Telegraph report about Kim Jong-un's father provides some flavour to this. The people of the South are also incredibly proud of their small nation. Koreans are typically a passionate people and are sometimes referred to as being the Italians of Asia. If you are ever in search of an entertaining evening, I would strongly recommend taking a drink in a Korean bar when the national football team is playing.

Continue reading »

Is the Don Trying to Get a 90 year old Granny Pregnant?

Trump has already developed a reputation for using statistics like a drunk uses a lamp post - for support rather than for illumination. During the campaign trail, he brazenly talked about lifting the economic growth rate to 4% and even 5%. More recently the White House has produced a budget proposal incorporating a 3% p.a. growth rate for the next 10 years, which sounds a little more plausible but still ambitious when compared to history.

Continue reading »

Outlook June 2017

Markets have made strong upwards progress so far in the year, though unlike in prior years earnings growth is coming through sufficiently strong to keep multiples stable. This is providing some comfort to us though we do wonder how long this EPS spurt can persist. Economic growth is unexciting but at least it is steady and broadly based. Recent data suggests that the US economy may be softening a tad but this is being offset by the pick up in Europe. Equity market valuations remain expensive but are unlikely to come under severe threat whilst conditions remain benign. This does not preclude the possibility of a summer correction and after the recent run, some back filling is now overdue.

We are baffled how interest rates can be maintained at negligible levels as the spare capacity created by the financial crisis appears close to spent. Experience tells us that we should be seeing wage pressure with inflation following on at its heels, though there is scant evidence of this happening. The slow down in productivity is another mystery and although arguably this predates the financial crisis, the scars created by the crisis may have deepened the trend.

Continue reading »

Filling the Bath in the Dark

NAIRU is one of those nasty looking acronym beloved by economists. Typically, the concept works very well in theory but has an unfortunate tendency to breakdown as soon as you apply it in the real world. It kinda makes sense that if there is a sufficiently large pool of unused labour in the economy, wage inflation will remain under wraps. Only once that spare capacity is used up do workers have the power to claim higher wages which are in turn passed on in higher prices.

Continue reading »

5 Key Things to Remember When Analysing a Fund

1. Commonly applied past performance screens are totally useless. Managers are rarely as bad as you think they are when they underperform, nor are they as good as you might think when things are going well.

2. You are looking for a manager who can invest money wisely, not necessarily ones that present well. Don't confuse these two skills.

Continue reading »

Does This Bull Market Still Have Legs?

Summer is finally upon us and while the temperatures are rising, there are few signs of any improvement in this blog's prose. However, the real question is how near are global markets to the chills of winter?

The old market adage has it that bull markets don't die of old age. While there may be elements of truth to this, elderly recoveries must be more susceptible to mortality. The current 8 year run is roughly the average length seen over the last decade and surprisingly it is only just half the length of the longest on record which occurred after WWII. For the current expansion to exceed this run, it would have to pass into 2024.

Continue reading »

A Wellard Brexit?

Some 9 months since the vote, we are gradually gaining a little clarity about the nature of Brexit. Despite court challenges, May's government triggered Article 50 in March and the process is formally underway. There are number of large stumbling blocks between the EU and the UK positions. As Juncker is reported as saying to Merkel over the weekend, May is 'living in a different galaxy' and that he is now "ten times more skeptical than before".

The two main contentious issues are the powers of the European Court of Justice and the free movement of labour. There may be some sort of compromise possible on the former, but the latter appears intractable. May would like free trade without uncontrolled immigration, the EU would like not. The UK as a result seems destined to leave the single market and take a clean break from Europe. In May's words, "No deal is better than a bad deal". A diamond tipped hard Brexit seems to be the likely outcome.

Continue reading »

May calls a snap election

After months of speculation about an early election in May, and perhaps thankfully for headline writers, May has surprised everyone by calling one in June. At first sight financial markets took fright at this news with the FTSE 100 falling by over 2%, but this was actually a reflection of the moves in the foreign currency markets where sterling shot up by 2% versus the dollar. With many of the UK’s largest listed companies deriving a large proportion of their revenues from abroad, a stronger currency has a negative effect on company profits. Political pundits and financial markets seem confident that a larger Conservative majority will result. If by some off chance Corbyn does prevail, investors should brace themselves for falls in both the stockmarket and the pound. Assuming the election goes as intended, it could ease May’s hand in her negotiations with the EU. We still don’t know if May favours a hard Brexit, which would be bad news for UK asset prices, or a soft Brexit which would b ...

Continue reading »

You've got to love this guy!

“I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me,”   Donald Trump.

For those more interested in facts, the dollar index is up 1.3% since the election result on 9th November.
Pages: Previous12345NextReturn Top

Archive