About a week ago I suggested that I thought the Eurozone would eventually act decisively to dampen fears of a total Euro meltdown. Despite a turbulent week I still feel this is the case although I am being accused of being overly optimistic in what are undoubtedly very tough economic times. So I thought I'd address an area I am less optimistic about, that of consumer spending, or lack of, and the struggle ahead for retailers.
Many retailers have been struggling for sometime with some notable names completely absent from the high street. Consumers are being far more frugal and the austerity measures to keep the national debts in check are likely to mean it will be an even slower recovery for many retailers. Many towns and cities across the UK have many vacant units
In their centres and I expect this to continue to worsen in the short term. The demise
Of the high street may also be part of a longer term trend towards online shopping meaning retailers will need to change there business models to survive.
The most resilient section of the consumer spenders has been tourists from overseas. A weak pound has helped attract record tourist numbers although this only applies to certain locations, most notably London. It will also be sensitive to exchange rate fluctuations.
From an investor perspective I would focus on retailers offering essential items, such as the more aggressive supermarket chains, rather than what might be considered less essential retailers such as high street fashion. I'd particularly be wary of those who haven't got a strong web presence.
Tuesday 27 September 2011
Thursday 22 September 2011
The Poor are Getting Richer
There is a global long term trend of wealth creation and the common misconeption is that it is only making the world's wealthiest even richer. Whilst it is true that the rich are getting richer, the poor are not getting poorer. Generally speaking the poor are getting wealthier over the long term and despite some recent large economic wobbles the wealth creation machine is still firing across most of the world.
Poverty as is a huge problem and is a long way from being solved. However in countries known for having large populations of people living in poverty, the improvements are encouraging. Take Brazil, a country known for a huge wealth divide, according to IPEA those living in extreme poverty halved in just 5 years to 2008. In that period those labeled as 'middle class' increased by 10% which in turn has increased consumption and expanded access to credit fueling further economic growth. India's growth has also been driven by an expanding middle class and those living below the poverty line has halved over the last 20 years.
Similar statistics can be found for most developing countries and with it comes consumption of covetted products such as mobile phones, consumer electronics and cars. This consumption has some far reaching implications for other problems, most notably global warming but certainly debunks the myth that the poor are getting poorer. This certainly needs to be addressed and there is still a long way to before poverty is defeated - India aims to have eradicted poverty by 2020 which seems unlikely but no doubt progress will have been made.
From an investment point of view I put a lot of faith in robust long term trends and their implications. In this case of the growing middle classes the desirable global brands should continue to thrive. Apple have seen unbelievable growth in the last decade but there are still huge markets in the developing world that are relatively untapped. The luxury goods market has also continued to expand - most of these brands are from the US or Europe where domestic consumption has been slow, however global consumption has more than comensated for it.
Poverty as is a huge problem and is a long way from being solved. However in countries known for having large populations of people living in poverty, the improvements are encouraging. Take Brazil, a country known for a huge wealth divide, according to IPEA those living in extreme poverty halved in just 5 years to 2008. In that period those labeled as 'middle class' increased by 10% which in turn has increased consumption and expanded access to credit fueling further economic growth. India's growth has also been driven by an expanding middle class and those living below the poverty line has halved over the last 20 years.
Similar statistics can be found for most developing countries and with it comes consumption of covetted products such as mobile phones, consumer electronics and cars. This consumption has some far reaching implications for other problems, most notably global warming but certainly debunks the myth that the poor are getting poorer. This certainly needs to be addressed and there is still a long way to before poverty is defeated - India aims to have eradicted poverty by 2020 which seems unlikely but no doubt progress will have been made.
From an investment point of view I put a lot of faith in robust long term trends and their implications. In this case of the growing middle classes the desirable global brands should continue to thrive. Apple have seen unbelievable growth in the last decade but there are still huge markets in the developing world that are relatively untapped. The luxury goods market has also continued to expand - most of these brands are from the US or Europe where domestic consumption has been slow, however global consumption has more than comensated for it.
Monday 19 September 2011
Stocks
Further to my post yesterday about buying opportunities in stocks there has been further fall out in the markets due to continued fear over the economic situation. I'll reanalysed some of my positions and still feel that the long term market outlook is positive. The instability and stock volatility will be around for the short term but as mentioned before I'm not day trading. Any meaningful response to the debt crisis, which as I mentioned in other posts I believe will come through, should give the markets a shot in the arm. Thereafter the growth is likely to be much more steady with less volatility.
This shouldn't be construed as investment advice but banking stocks in particular have taken a hit and I think this is a buying opportunity. For example you can pick up RBS and Barclays stocks today for 22p and 151p respectively. Will be interesting to see where they are in 2 - 3 years time! Whilst liquidity is still tight the larger UK banks are generally maintaining their market share and the margins on lending activity are still very high.
This shouldn't be construed as investment advice but banking stocks in particular have taken a hit and I think this is a buying opportunity. For example you can pick up RBS and Barclays stocks today for 22p and 151p respectively. Will be interesting to see where they are in 2 - 3 years time! Whilst liquidity is still tight the larger UK banks are generally maintaining their market share and the margins on lending activity are still very high.
Sunday 18 September 2011
Where I'm Investing Now
This is my first post about where I am actually discussing investments. I won't be giving specific stock picks as I don't want this to appear to be investment advise, however I will be stating where my money is going for the record and to track progress of my expectations. I should also note that I'm not a day trader and take a view over the medium / long term.
Over the last few months I have been increasing my exposure to the stock market and will be continuing to do this over the next few months at least. My aim being to select stocks that I believe are significantly undervalued with particular focus on stocks with good dividend yields. I'm attracted for two related reasons, firstly the low interest rate environment makes them an attractive income source and secondly for this very reason I expect that these stocks will be the first to recover and show the best growth over the next 2 to 3 years. Even the most bearish stock investors will struggle to resist the dividends of blue chip / high yielding stocks as interest rates continue to remain low. I do reassess my portfolio regularly but generally don't by a stock unless I think I'll be happy holding for at least 2 years. Also I am referring mainly to UK stocks simply because this is my native market and one I am more comfortable with; I do also have some exposure to European and US equities.
The looming shadows over the stock market that have caused the deep decline are well reported and at present the Eurozone crisis is the main factor. As touched on in a previous post I feel that the problem will soon be properly address simply because it has to be. Eurozone leaders have been guilty of just doing enough but have reacted when emergency looms and that is the situation now. The solution I expect to be a central European Treasury and formation of this institution will give the markets a confidence boost that the Eurozone crisis will be managed through. There will almost certainly follow a period of austerity in most of Europe but these factors have already been factored in to stock prices. Due to these continued austerity measures the market recovery will be slow but with a formal 'lender of last resort' in place in Europe there will be a feeling of stability and slow change in sentiment.
It is currently Sunday afternoon in London so all the stock markets are closed. The FTSE, DJIA, S&P and the DAX closed at 5368, 11509, 1216 and 5573 respectively on Friday.
Over the last few months I have been increasing my exposure to the stock market and will be continuing to do this over the next few months at least. My aim being to select stocks that I believe are significantly undervalued with particular focus on stocks with good dividend yields. I'm attracted for two related reasons, firstly the low interest rate environment makes them an attractive income source and secondly for this very reason I expect that these stocks will be the first to recover and show the best growth over the next 2 to 3 years. Even the most bearish stock investors will struggle to resist the dividends of blue chip / high yielding stocks as interest rates continue to remain low. I do reassess my portfolio regularly but generally don't by a stock unless I think I'll be happy holding for at least 2 years. Also I am referring mainly to UK stocks simply because this is my native market and one I am more comfortable with; I do also have some exposure to European and US equities.
The looming shadows over the stock market that have caused the deep decline are well reported and at present the Eurozone crisis is the main factor. As touched on in a previous post I feel that the problem will soon be properly address simply because it has to be. Eurozone leaders have been guilty of just doing enough but have reacted when emergency looms and that is the situation now. The solution I expect to be a central European Treasury and formation of this institution will give the markets a confidence boost that the Eurozone crisis will be managed through. There will almost certainly follow a period of austerity in most of Europe but these factors have already been factored in to stock prices. Due to these continued austerity measures the market recovery will be slow but with a formal 'lender of last resort' in place in Europe there will be a feeling of stability and slow change in sentiment.
It is currently Sunday afternoon in London so all the stock markets are closed. The FTSE, DJIA, S&P and the DAX closed at 5368, 11509, 1216 and 5573 respectively on Friday.
Saturday 17 September 2011
Who lends money to countries?
The occasional post will look at some basics of how the financial world works. Having worked in the markets for some time it is easy to unknowingly speak in financial jargon and make some fairly sweeping assumptions when speaking to those who may be less familiar with the workings of the financial system. So I'm also going to cover a few questions that may have been asked by friends of family when discussing these issues.
A common question is that countries are often described as having huge debts, but who lends them all that money?
It isn't like you or I filling out an application form to get a bank loan. Firstly to understand where most countries borrow their money from you must understand what a bond is. A bond is essentially debt - those who issue bonds are taking on a debt. A bond will be sold for a fixed amount of money, a fixed term and the issuer will pay the buyer an annual return during the term of the bond. At the end of the term the borrower (the issuer of the bond) must repay the lender (the buyer of the bond) in full. Therefore to raise money countries issue bonds to the market. The annual return (yield) an issuer bonds must pay depends on their apparent credit worthiness. Europe demonstrated this well with yields on Portuguese and Greece debt being significantly higher than Germany.
So who buys bonds?
Anyone can in theory buy bonds but due to their large denominations Government bonds are typically purchased by pension funds, investment trusts, sovereign wealth funds etc.... So these are essentially those who lend to countries. In times of economic turmoil government bonds from countries like the US are seen as a safe haven for money so they tend not to have a problem finding investors. Once an investor has bought a bond they can sell it to another investor if they wish and this is called the secondary market, but I won't go into too much detail there.......
A common question is that countries are often described as having huge debts, but who lends them all that money?
It isn't like you or I filling out an application form to get a bank loan. Firstly to understand where most countries borrow their money from you must understand what a bond is. A bond is essentially debt - those who issue bonds are taking on a debt. A bond will be sold for a fixed amount of money, a fixed term and the issuer will pay the buyer an annual return during the term of the bond. At the end of the term the borrower (the issuer of the bond) must repay the lender (the buyer of the bond) in full. Therefore to raise money countries issue bonds to the market. The annual return (yield) an issuer bonds must pay depends on their apparent credit worthiness. Europe demonstrated this well with yields on Portuguese and Greece debt being significantly higher than Germany.
So who buys bonds?
Anyone can in theory buy bonds but due to their large denominations Government bonds are typically purchased by pension funds, investment trusts, sovereign wealth funds etc.... So these are essentially those who lend to countries. In times of economic turmoil government bonds from countries like the US are seen as a safe haven for money so they tend not to have a problem finding investors. Once an investor has bought a bond they can sell it to another investor if they wish and this is called the secondary market, but I won't go into too much detail there.......
European Treasury?
Inaction in Europe to meaningfully address the Eurozone criss is not a maor surprise due to the political forces but we're comign to a point where something has to give. They have responded with emergency action when required, typically by buying up bonds of the deificit nations, which shows that they can move swiftly to avoid disaster. They have been necessary measures but the heart of the problem lies in the structure of the Euro which can't be solved by buying up bonds.
During the turmoil of the summer there was a feeling that certain countires may consider exiting the Euro to save themselves and this is still a widely supported strategy in Germany. The alternative is to commit fully to the Euro, pool national debts and have a central European Treasury able to issue jointly backed Eurobonds. Up until recently this idea has been opposed in Germany as it is likely to be very costly to them however they are begining to digest the implications of abandoning the Euro altogether, which is likely to result in a total meltdown and deep recession.
In my opinion the common European Treasury is the only feasible option and may finally settle the markets and convince the wider populous that the heart of the problem has been address. There would be significant austerity measures to pay for the move so it won't be an overnight solution but the sentiment should change for the better.
During the turmoil of the summer there was a feeling that certain countires may consider exiting the Euro to save themselves and this is still a widely supported strategy in Germany. The alternative is to commit fully to the Euro, pool national debts and have a central European Treasury able to issue jointly backed Eurobonds. Up until recently this idea has been opposed in Germany as it is likely to be very costly to them however they are begining to digest the implications of abandoning the Euro altogether, which is likely to result in a total meltdown and deep recession.
In my opinion the common European Treasury is the only feasible option and may finally settle the markets and convince the wider populous that the heart of the problem has been address. There would be significant austerity measures to pay for the move so it won't be an overnight solution but the sentiment should change for the better.
Friday 16 September 2011
Introduction
To expand a little on my profile. I am an active financier working in London and have a broad interest in the financial markets, alternative investments and economics. I have started this blog primarily to record my thoughts and actions in real time rather than looking back with the considerable bias of hindsight to explain events and actions.
I'm an avid reader of any genres and will be commenting on new theories and practises I encounter and what I feel that I can learn and use. At the time of beginning this blog the developed world is still very unsure and unsettled the economic situation. The 'credit crunch' and failure of Lehman Brothers is now around 3 years old although there seems to be little light at the end of the tunnel. Bank lending and liquidity is still severly restricted and the extent to which banks require to raise new capital is still not fully known, particularly in Europe. However whilst Governments make statements about banks needed to lend to small businesses at the same time they are imposign stricter regulations. Whilst most would welcome regulations to prevent economic catosthrophe like we've seen over the sub-prime crisis, we've also seen this reaction after every recession and all it does is try to address issues that caused the last crisis and not fundamental market issues that may already be contributing to the next. Also like it or not the politicians tend to think politics before economics so the current trend of 'banker bashing' is likely to continue, whether or not it actually helps or harms the economy. (nb I'm not a banker!)
I'm also interested in the differing opinions of respected economic advisers and successful practisioners such as George Soros who's investment decisions often contradict traditional and widely believed economic theories such as market equilibrium. However with Soros' investment record surely he has to be winning over some of his critics and for those who've read his reflexivity theory there is a good dose of common sense - something many investment decisions lack. Will economic theory, as taught to the next batch of bankers and CEOs, catch up with the practises of the most successful hedge fund managers?
Finally a quick point on the blog title - many investors define themselves by either being a 'top down' or 'bottom up' strategists. I don't really see how you can make an investment decision without considering the wider economic context or without specific research into who or what you are investing in so the two shouldn't be mutually exclusive.
I'm an avid reader of any genres and will be commenting on new theories and practises I encounter and what I feel that I can learn and use. At the time of beginning this blog the developed world is still very unsure and unsettled the economic situation. The 'credit crunch' and failure of Lehman Brothers is now around 3 years old although there seems to be little light at the end of the tunnel. Bank lending and liquidity is still severly restricted and the extent to which banks require to raise new capital is still not fully known, particularly in Europe. However whilst Governments make statements about banks needed to lend to small businesses at the same time they are imposign stricter regulations. Whilst most would welcome regulations to prevent economic catosthrophe like we've seen over the sub-prime crisis, we've also seen this reaction after every recession and all it does is try to address issues that caused the last crisis and not fundamental market issues that may already be contributing to the next. Also like it or not the politicians tend to think politics before economics so the current trend of 'banker bashing' is likely to continue, whether or not it actually helps or harms the economy. (nb I'm not a banker!)
I'm also interested in the differing opinions of respected economic advisers and successful practisioners such as George Soros who's investment decisions often contradict traditional and widely believed economic theories such as market equilibrium. However with Soros' investment record surely he has to be winning over some of his critics and for those who've read his reflexivity theory there is a good dose of common sense - something many investment decisions lack. Will economic theory, as taught to the next batch of bankers and CEOs, catch up with the practises of the most successful hedge fund managers?
Finally a quick point on the blog title - many investors define themselves by either being a 'top down' or 'bottom up' strategists. I don't really see how you can make an investment decision without considering the wider economic context or without specific research into who or what you are investing in so the two shouldn't be mutually exclusive.
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