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Positive Start to 2015
Super Mario Strikes again.
In my last blog of 2014 readers will recall I mentioned ‘the big bazooka’ referring to a potential course of action by the European Central Bank (ECB) to undertake a series of Quantitative Easing or QE as it is referred to. Well this happened on the 22nd January when ECB governor Mario Draghi announced a series of QE. The financial markets have reacted fairly muted since then. I think the main reason for this was that on the run up to ECB meeting on the 22nd it had become common knowledge that QE was going to be announced. And therefore the markets had already reacted positively in the lead up to the meeting. The QE program is due to run until September 2016, and should have a positive impact on the Eurozone region, and global markets also during the next 18 months.
The results are cast in the Greek elections and the instant reaction will likely be negative. We would all like to think that the Syriza Party have no incentive to cause further turmoil in Greece. Especially as Greece has experienced a great depression as extreme as that of the United States in the 30’s. All that we can hope for is that the ECB acts as a trigger for dose of realism over lost debt, whilst at the same time to start controlling national budgets. I dare say this subject will roll on over the coming months.
Credit Rating agency Morning Star have today downgraded Russian debt to junk status, further adding to the woes of Vladimir Putin. It is a very serious concern the Russian situation, because at the start of 2014 they went on the offensive (in Ukraine) many commentators believing to hide the economic problems. And now these problems are coming back to haunt them further. Let us just hope that as the Russian economy gets harder and the ordinary people struggle even further, then Mr Putin will see sense.
Simple Solutions Model Portfolios
We have held the first investment portfolio meeting of 2015 last week, and there are a couple of small changes or ‘tweaks’ as I like to refer to them, in the portfolios. One market I have been looking at for some time is India. And now I think is the right time to move on it, so we have added an India investment fund into the model portfolios. As global markets struggle to digest what crumbling oil prices mean, India continues to reap the rewards of cheaper oil.
As investors struggle to find accelerating growth across the globe, we are strong believers that India is one market where we will see such improvements – so much so that we expect India to take over from China as the fastest growing major market in the world by the end of 2016. Now there is a big prediction.
I have mentioned oil several times on my recent communications and its falling popularity. And commodity investment funds in general have struggled, but that is why we have not got a commodity fund in our portfolios.
One region we are very bullish on is Asia Pacific, mainly because in general they tend to be importers of oil, and they are also benefiting from the cheap prices. So don’t expect too many changes here in our portfolios.
One asset class that did very well for us last year was the Private Equity sector, and we have not reduced this exposure to the portfolios because we see it as a good source of growth, particularly as there are still concerns over banks’ lending.
A surprise asset class that caught almost everybody out last year was fixed income, and in particular government bonds, with their strong rally in the 2nd half of the year. I am not really certain if this rally can be sustained, given interest rates and yields. And I suspect that the buyers of these assets are the big central banks rather traditional investors and investment fund managers. However we shall certainly see in 2015.
Deflation & Interest Rates
I have no doubt that at some point this year deflation shall raise its ugly head at some point. But as the impact of falling oil and commodity prices in general start to kick in, then this will cause economic dynamics to return to the norm. I read an article recently that said the average family with a car in the United States will be the equivalent to over $800 per annum, which is like having a tax refund.
The names of Martin Weale and Ian McCafferty probably be unknown to most people, myself included. However, these are the two gentlemen on the Bank of England Interest Rate committee who have been lobbying for an interest rate rise over the last few meetings. But, guess what? The minutes from this month’s meeting showed that the former hawks were swayed by the recent plunge in UK consumer prices, which they feared could lead to a period of disinflation if monetary policy were to be tightened. Now given this news, what are the chances of an interest rate rise here in the UK? I have nailed my colours to the mast previously on the subject of interest rates, and I am certainly not going to change this now.
Sterling v Euro
The pound has rallied against the Euro which I predicted in my last communication and is over the 1.34 mark. I would expect the pound to get progressively stronger throughout this year. Bu as I have said previously making a ‘call’ on currency is one of the most difficult jobs to do. So don’t hold me to it please!
Generally, the outlook for the global economy remains good. As you have seen over the last 18 months the line is not straight, far from it. And we are still in recovery from the meltdown of 2008. But we are getting there. And as I always say ‘stay the course’ and do not worry about events that you cannot control.