“This suspense is terrible. I hope it will last.”

-        Oscar Wilde.

Is there any investor out there not suffering from crisis fatigue ? The Greek black comedy rolls on. German bonds – especially at the long end – continue to fall faster than FIFA’s credibility. Fears of a Chinese credit bubble duke it out with worries over US interest rate policy. It can all be quite exhausting. But it needn’t be – we can choose what to worry about. The pragmatic investor might well be blithely indifferent to these concerns, on the basis that a) there’s nothing we can do about them and b) none of it really matters. Provided that we’ve positioned our investible assets appropriately.

First, Greece. The country is toast. This is hardly a revelation. Clearly, a Grexit has implications for the future stability of the euro zone. But if you take the view, which we are inclined to, that the euro zone is anyway destined for perhaps a decade of sub-optimal growth, what real difference will a Grexit make ?

Next, euro zone bonds. David Oakley in the FT writes that a Greek default “[would] likely prompt.. a switch out of peripheral bond markets into havens such as gilts and US Treasuries.” There was once a time – say, as far back as March this year – when any mention of “havens” would have included German government bonds, or Bunds. Not any longer. Our favourite “risk-free” reference rate is the yield on the German government 2.5% bond maturing in August 2046. Since mid-April, the yield of this bond has risen by just over 1 percent, from 0.46% to 1.54% at the end of last week. Sounds relatively innocuous, no ? That rise in yield equates to a fall in price of roughly 36%. In just over a month. We thought the collapse in Bund prices was grisly, until we spotted the carnage unfolding in the Austrian government bond market. Ladies and gentlemen, we give you the Austrian government 3.8% bond maturing in January 2062. The price of this “risk-free” asset has fallen from roughly 220 to 162 as at the end of last week. That is a fall in price of nearly 60%. Those who are mathematically inclined might want to consider that when this bond matures (if this bond matures), in January 2062, it will do so at a price of 100. Anybody buying this bond today and intending to hold to term will incur a guaranteed capital loss of a further 62%. Well, that’s bond investors for you. Ben Graham had a nice line about the definition of investment:

David Fuller's view

We are currently in what have proved to be the more challenging months of the year for markets, on average.  Most equity indices are now in a corrective phase.

Seasonal factors, detailed in this article from See It Market: Welcome To The Worst Month For Stocks Of The Past 10 Years, Grexit uncertainty, and renewed concerns over slow GDP growth are among factors weighing on share markets.  This is discussed in more detail in the latest Audio.