For example, entomologists have shown that rock ants prefer turning left. Unrelated studies prove that young bilingual children who learned one language first are more likely than monolingual children, and than bilingual children who learned languages simultaneously, to say that a dog adopted by owls will hoot.
New year, new president, new words – as the rough beast of democracy slouches on. Trump’s top eight officials (president, vice-president, chief of staff, attorney-general; and secretaries of state, commerce, defense and treasury) have only 55 combined years in government - but 83 years in business. Obama’s comparable team had 117 years in government, but only five (yes, five) in business. Which will markets prefer? The answer, of course, depends - not least on whether president Trump can take policy beyond 140 characters. What equities and bonds do not like is the ultracrepidarian: “Ne supra crepidam sutor iudicare, the cobbler shouldn’t judge above the sandal” - as Pliny (the Elder) had it. This lives on in the English proverb: “Let the cobbler stick to his last.” Trump is no cobbler; and he may not last?
Nevertheless, and unless and until politicians stop it, capitalism will continue. Lithium may be about to be mined in Cornwall, and the South Crofty tin mine re-opened. Netflix only started making original programmes in 2013. Yet it’s to spend $6 billion on new productions this year. That’s enough to produce 18 times the most expensive film ever made (Pirates of the Caribbean: At World’s End, in case you were wondering); and it’s a fair stab at the $7 billion spent by all the major Hollywood studios together in 2015. And so does the fourth industrial revolution show its form.
It needs to. Although Obama didn’t quite make it, Trump has $20 trillion of US national debt in clear sight. Today Obama will bequeath him $19,961,467,137,973.64, to be precise. Total US debt has increased by $9.3 trillion, or 88%, since Obama’s first day in office; and it looks like both ‘Dow 20,000’ and ‘Debt $20 trillion’ will have to belong to the Donald.
Yellen’s not saying much. Nor, yesterday, was Draghi. Perhaps they now know they don’t know. Sticking to the sandals, we do. But this is:
What four of us think…
Cormac Weldon, US Select: “The market already seems to have priced in Mr Trump’s pledges to cut taxes and increase spending on infrastructure. And while we remain positive on the outlook, we do have some concerns that these measures might take longer to materialise than the market hopes and might not be quite as extensive as it would like. We remain positive on financial stocks, particularly the regional banks. Not only should they do well in an environment of rising rates, but they will benefit greatly from the proposed tax cuts as well as from potential de-regulation and an increase in M&A activity. The portfolio still has a focus on stocks that are domestic earners, which will benefit more from the proposed tax cuts and are less affected by the strength of the dollar.”
Jacob de Tusch-Lec, Global Income: “The world is now shifting from a deflationary to a reflationary environment. Trends in commodity prices, wage growth and economic activity indicate that bond yields can continue to rise. But that does not mean there is no risk of a retrenchment in bond yields or in equity markets, particularly given the recent strength of the dollar. There could, for example, be a mistake in monetary policy (overly aggressive tightening by the Fed) or the strong dollar could put too much pressure on emerging economies’ debts.
“Yet while it seems wise not to be positioned too narrowly for one particular outcome and we don’t have an outright bullish stance, for now everything seems to point in the same positive direction. Not only is the US economy growing nicely but economic data in every major region of the global economy is beating expectations. Our European holdings are starting to perform well as liquidity chases undervalued assets. Inflation is stronger than it has been for half a decade and commodity prices are rising. This is unambiguously positive news for the global economy and for our fund’s reflationary bias.”
Ed Legget, UK Select: “We have a diversified portfolio of companies that are, in our view, well placed to deliver strong growth in earnings – and dividends – in the year ahead. The aggregate valuation of the portfolio remains attractive: it trades on a p/e multiple of just 11x forecast earnings for 2017. We believe that as our holdings deliver on these forecasts, this gap should to start to close and, in so doing, help the fund to continue to recoup the relative losses it suffered in the first half of 2016.”
Philip Wolstencroft, European Growth: “I would argue that, over the three years to 2015, the majority of active funds outperformed primarily because they had crowded into ‘bond proxy’ stocks. But in 2016, bond proxies began to struggle and almost three quarters of active funds underperformed their benchmark. It will probably take a while for investors to realise this trend has reversed. In the meantime, value stocks are doing well, the economy is muddling along and profits are matching expectations. In p/e terms, our holdings still sit on a 25% discount to the average. Having delivered superior growth over the past year, there is no reason why the discount shouldn’t narrow significantly. If it does, 2017 may well be a good year for our fund.”
The Profit Hunter
The eponymous hunter, always seeking the Profit.