One of the amusing features of being a financial newsletter and media junkie is reading the same stuff over and over again. Fund manager updates in any given month simply repeat what the respective central bank chieftains – Philip Lowe and Jerome Powell – said a few weeks earlier as if we haven’t heard it all a hundred times before. Then the updates speculate about what the central bankers might do next month, as if these formulae at the top of every month had some special inside track on future Fed action. Do all these millions of people use the same machine learning or AI application to generate their reports? C’mon, fundies…Masters of the Universe and Smartest People in the Room etc. Mix it up a bit. Don’t make us believe your I is A.
These are the same fund managers who tell investors to take the long view and discount short-term performance. But within their missives are pages of commentary on the very short term as if no one else has ever covered the cash rate, inflation or moves in the daily index. Leave that crap to economists like Bill Evans, Shane Oliver and Gareth Aird and tell us something new. Nor does the Reserve Bank have a record of any kind to follow, with the Governor himself describing its guidance as “embarrassing”.
For anyone writing a programme using AI that’s already begun to manage funds, here is a template for the opening paragraph:
"Last month, the [Australian index]/[global index] rose/fell by [x%] following the US Fed's [dovish]/[hawkish] remarks on [improved]/[worsened] the [inflation]/[interest rate] landscape. [Name of fund] rose/fell by [y%] in [month name], beating/lagging the index by [z%]. The portfolio outperformed with exposure to [sector x], particularly [company x name], while position in [sector y] via [company y name] was a drag. Next month’s forecast is [bullish]/[bearish] (expected [growth]/[recession]) with the GDP slotted to [gain]/[decline] by [a%]. We anticipate a [0.25%][0.5%][0.75%][1%] increase/decrease in cash rates at the [Reserve Bank][Federal Reserve] next meeting. As we invest we invest quality companies through-the-cycle for performance over time."
And on it goes. No options in the last sentence because every fund manager thinks his or her investments are the best. Stick in a few charts, update the performance table, put it through the mail, and there you go, again and again, for thousands of fund managers all over the world.
Many of those notifications are obsolete already, as analysts click the send button. The US Fed’s Powell did a number on the market this week in Jackson Hole in an eight minute speech. The Wall Street Journal reported that before the speech, Fed officials were worried that investors were driving stocks higher and misinterpreting Fed plans to rein in inflation by lifting rates aggressively. So Powell reworked his original speech to be much blunter and more direct, with the punchline that “the Fed would take a recession as the price we might have to pay to get a lower rate of inflation. The US stock market fell 4% on the spot, and the optimism of a few hours earlier was entirely reversed, with updates rewritten.
As they say of sausages, no one should see how they are made. You’d be amazed how fast an analyst can flip-flop on an opinion based on one number or one sentence out of a government official.
There are some cases where a unique research is indeed given. A great one is the Global Fund Manager Survey (FMS) from the BofA Data Analytics team at BofA Securities. The monthly report includes the opinions of some 300 institutional fund managers worldwide. Below are a few charts that demonstrate what global market pros are currently up to, and it’s the degree to which so many of these are at or near all-time levels that’s especially striking. The signs are virtually all negative for the market outlook.
Speaking of the Deputy Governor Michelle Bullock, she made comments at a Bloomberg event yesterday outlining the $40 billion market-to-market loss on its bond holdings, and how it wouldn’t be able to pay a dividend to the Government for many years, and while the booming sound bite from the event was a statement mentioning the size of the loss it was during the Question time where I picked out a key sentence. “The world economy is hanging on a knife-edge.”
The Fed raised its target rate another 0.75% and more to come (as much as 4.40%) overnight (Thursday AEST). Jerome Powell is signaling that the ‘soft landing’ is getting less likely. The US market closed lower with the S&P 500 down 1.7% and NASDAQ falling 1.8% on the day.
This week’s Reader Survey has received the biggest response yet – easily surpassing the 800 respondents from last week – with a large sample of the community telling us what they think the Government should and should not do in a plethora of policy areas as it puts together the upcoming Federal Budget. See the full results with a PDF that includes thousands of your comments. Kudos for the great 1 in your result! We will keep the Survey open for a few days longer, and we’ll include some top-line comments in another post sometime next week.
A handful of articles this week explore how to account for inflation in investing. Don Hamson, of Plato Investment Management, reveals how much buying power a conservative investor has given up if they put money into term deposits and warns many more people could be on an age pension if their assets do not grow. He’s also constructive on dividends. And there are two of his brilliant charts to demonstrate how inflation affects asset values over the years,” said Ashley Owen of Stanford Brown.
Next the analysts at Natixis, headed up by Dave Goodsell, get into the effects of inflation and demographics on the retirement welfare of Australians and investors worldwide, and again how Australia is performing overall in the Global Retirement Index (GRI). Take a look at where we rank in the world for the elements that make for a good or bad retirement.
There’s a regime change coming and it’s striking investors,” says Nikko Asset Management’s Will Low, who sees investors needing new playbook tactics to pull along a new and rougher road. Next, Robert M. Almeida of MFS Investment Management opines that most analysts do not invest money, and this is where the rubber meets the road. He shares what he has been doing with his portfolio in the past month, telling us he thinks we haven’t yet ‘hit the bottom’ because there isn't enough pain.
Franklin Templeton’s Stephen Dover adds that the focus on inflation and high employment is ignoring another big risk, that of stagflation, where the economy is either just growing or not at all, and inflation and interest rates both stay low.
Finally, recall all the talk a year or two ago about meme stocks on Reddit and first time traders making a killing on the RobinHood trading app in the US? You don’t hear much of it these days but the great thing about social media, such as Reddit (extract below) is that people can share their results anonymously. In the meme madness, some people waded into options without understanding what they were doing, and US$700,000 in bets became US$122,000. We don’t hear much about these losses and risks because the “diamond hands” are only talking about their gains.
