Email of the day (2)
"Would you be so kind as to add Artemis Global Energy ARTGLER, and Jupiter European Opportunities Investment Trust JEO to the chart library.
"I attach a thought piece from Aubrey Capital Management which might or might not be of interest to the collective."
The largest single threat to investors is sovereign debt. Many developed, and some less developed countries have run up colossal levels of debt, issued huge quantities of government bonds and printed money. This is no cure, it is financial alchemy.
There are serious implications for investors under these circumstances, including inflation and currency debasement.
We are generally fearful of the currencies of those countries with large net foreign debts. This includes the US$, and its status as the world's reserve currency.
Government bonds, excluding some index-linkers, of all highly indebted nations should be avoided.
We favour currencies and assets which hold their monetary value best - Swiss Franc, Norwegian Krone, Singapore $ and the ultimate currency, Gold.
Equities are capable of protecting and growing wealth during times of inflation, but are no panacea for investors and the risk reward in equities deteriorates when inflation is strong.
Real interest rates are negative, and monetary policy is excessively stimulative. While these conditions persist, economic growth will surprise on the upside and equities, which look relatively cheap, are currently the asset of choice.
Japanese equities offer the best value in relative and absolute terms. We look for a combination of inflation, global recovery, domestic stimulus and shock post tsunami, to provide the inflection point for this market.
Commodities including Oil have further to run, and there is potential for an accelerated surge higher in prices.
We are not unduly concerned by the ending of QE2, the drag from high energy prices or a hard landing in China, but are fearful of the moment that the US Federal Reserve tightens interest rates.
Aubrey Capital Management runs the Aubrey Collective Conviction Fund to reflect these views. While retaining the right to change our mind, the intention of this Fund going forward is to stick tightly to our outlook and seek out assets that first and foremost protect the real value of our investments, and secondly, when conditions permit, increase their value in both relative and absolute terms. To achieve this we find the best vehicles and managers in our chosen asset classes.
David Fuller's view Eoin will
be able to add those two instruments to the Chart Library shortly after his
Many of the Aubrey Capital views are similar to those of Fullermoney, but there are some important exceptions or at least qualifications.
We see the potential for higher oil prices in the chart action shown by WTI and Brent, and this remains a concern because oil really is a game changer. However, unlike some other industrial commodities and foods, we do not think that crude's moderate spike this year is driven by consumer demand, which may actually be declining due to costs and the availability of alternative fuels, not least natural gas. Consequently, at least $20 in the current price of crude oil is due to speculation in response to understandable concerns over supplies from the Middle East.
As for Japan, while we accept the valuation argument based on book value, this does not extend to yield. Additionally, relative performance among equities is heavily influenced by investor perceptions regarding what Fullermoney refers to as the Global Beauty Contest. Japan still suffers in that respect and this has prevented recovery attempts by the Nikkei 225 (historic, monthly & weekly) from gaining momentum. I anticipate additional base formation extension.
Lastly, I am less "fearful of the moment that the US Federal Reserve tightens interest rates", as Aubrey Capital states above. The initial hike could be regarded as a vote of confidence in the economy and job creation, and all it will really do is slightly increase the cost of money. Stock markets have often extended rallies during the early increases in a cycle of higher interest rates but the outcome will also be influenced by other events at the time. I will become more concerned when the Fed signals that it will no longer reinvest the money from expiring Treasuries which it holds, as that would represent an actual tightening of monetary policy.
Meanwhile, monetary conditions are still a tailwind, albeit slowly moderating globally. Conversely, commodity prices remain a headwind which has yet to moderate, although the Continuous Commodity Index (Old CRB) (historic, monthly & weekly) looks overextended and has seen some loss of momentum in the last two months. These remain the opposing forces which have kept stock markets mostly rangebound in recent months.