I’ve recently added a new chapter to my long-running demographics journal, which I will present in more detail later this month. Before I get to that, I thought that I would have a look at my own financial performance in 2021. In preview, I did ok, but not as well as the market. My portfolio, split across two accounts at AJ Bell and Nordea, returned 6.6% in 2021, when adjusted for a significant zero-return cash position, and around 10% on its own. I am embarrassed to say that I dropped the ball on the month-to-date PnL calculations throughout the year to a larger extent than usual, so these numbers are a bit a uncertain. They are, in any case, far from the show-stopping returns of the MSCI World equity, index at just over 21%, let alone the performance of the mighty S&P 500, at 27%. My first two charts plot the top and bottom 10 performers, which is as good a basis as any to talk about markets.
Read MoreApart from soul-searching on the endgame for Covid—see my version here—the arrival of Omicron seems to have had two relatively predictable effects on financial markets. Volatility has shot higher, and the yield curve has flattened. Put differently, stocks have sold off, and the long bond has rallied. The MSCI World is down just under 4% from its peak at the start of November, and the U.S. 10-year yield is off some 25bp. Neither of these numbers are dramatic, but they’re eye-catching, all the same. I suspect these shifts are driven by both fears of Omicron—despite little hard evidence that it is the vaccine-evading super-bug everyone has feared—and the fact that monetary policymakers so far have had little interest in changing their stance. More specifically, Fed officials have said nothing to shift expectations that it is expected to taper QE to zero by the middle of next year, and start raising rates shortly thereafter.
Read MoreThe skirmishes in the macro wars are getting dirtier. More recently, the debate on inflation has pitted #TeamTransitory and its detractors—I’ve seen the other side described as #TeamPermanent and #TeamSustained—in a mud-slinging and, often emotionally charged, spat. I suspect that #TeamTransitory will win, eventually—whatever that means—though I also think this side of the debate has most to answer for in terms of the deteriorating debate. The rules seem to change as the consensus-beating inflation prints roll in. As I as explained here, it is unreasonable to term all versions of the world in which inflation is not making a new high on a monthly basis, as a transitory. More importantly, however, the checkmate-like rebuttal to anyone arguing that rates could and should go higher that they must be in favour of higher unemployment is particularly odd to me. The question we need to ask it seems is whether there are conditions under which policy tightening—both fiscal and monetary—to rein in demand are optimal or desirable, in an economic sense, even if it means, presumably, unemployment going up. The answer is; yes.
Read MoreSometimes in markets, everyone looks up the same price in the morning to get a feeling of where sentiment is. It’s often one of the big ones; the S&P 500, the long bond, the price of oil, DXY, or gold, or even Bitcoin. Recently, everyone has been following the bloodbath in short-term interest rate markets as implied rates in one developed market after the other have gone haywire. Things have settled down slightly in the past week following the FOMC meeting, and the hilarious unch-BOE decision in the face of a near-certainty of a rate hike only a few weeks ago. I reckon implied rates will fall a bit further in the near term. The U.S. 2y, for instance, seems like it wants to go down before it’ll try to snap back, implying that the violent decline in short-term interest rate futures—though not necessarily those for 2022—should ease a bit too. But it is difficult to escape the feeling that the genie is out the bottle. Expectations have shifted, and while central banks won’t have to meet them as priced, they will have to deliver something.
Read More