Email of the day - on returning customers
Comment of the Day

August 12 2020

Commentary by Eoin Treacy

Email of the day - on returning customers

Dear Eoin and team, I would like to thank you very much for the big difference you have made to my confidence in advising my clients, since I re-joined the service. If only I could find a way of explaining the benefit to my professional contacts! All the very best

Eoin Treacy's view

Thank you for your kind words and welcome back. The one thing I would highlight for prospective subscribers is that in the evolving global tapestry of events, some big picture perspective is likely to be beneficial.

We are at a pivotal time in markets because there have seldom been such confluences of fear, uncertainty, liquidity and disruption. That virtually ensures there will be big winners and losers. In this kind of market environment, it is almost as important to avoid the losers as it is to bet on the winners.

That’s one of the primary reasons value investing continues to underperform. Historically, quiet businesses with strong cashflows could prosper in obscurity. Today, everything is public and subject to minute analysis by algorithms. A true value prospect tends to be quickly acquired by private equity and those that remain public have the uncertainty of obsolescence hanging over them.

When metrics of growth’s outperformance relative to value are highlighted, they ignore the fact that high margin cash generative businesses are heavily concentrated in the unlisted sector. That’s also why pension funds, insurance companies, university endowments etc. are so heavily focused on “alternatives”. Additionally, they don’t have much choice because with zero interest rates they have no choice but to invest where the returns they required are a possibility.

The continued bull market in gold and the weakness of the Dollar are part of that wider long-term pattern of compressing yields and massive accumulation of debts. With more than 90% of global sovereign debt and 80% of all debt with yields below 1% there is a scramble on to capture a return. That pretty much ensures there will be continued demand for the promise of growth and hard physical assets like gold and property.

The devaluation of fiat currencies is a major bonus for US Dollar debtors. That’s as true of mortgage holders as it of emerging market US Dollar debt issuers. The coronavirus is a mitigating factor in the rebound in emerging markets. Gold is leading but emerging markets are likely to turn back to outperformance, particularly in 2021.

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