Spy was in the mood, this week, of hellraising journalist, Christopher Hitchens who once said, I have been “burning the candle at both ends and finding that it gives a lovely light.” Over far too many pints of Thatchers Gold cider, Spy endured a magnificent rant from an equity analyst on Wednesday evening. “Why do so many growth funds deliver paltry 5%, risk-adjusted returns?”, he thundered, “It is like ordering a Greek salad and they leave the feta cheese out! It is not right and it should not be done.” Spy has a limited view on Greece’s national speciality dish but found it hard to disagree with the belligerent rest. A growth fund should, indeed, be blowing the lights out, or don’t bother coming to the party, you benchmark hugging charlatan!
Bitcoin, it is hard to believe, for Spy anyway, is now fifteen years old. It was started on the 3 January 2009, when pseudonymous founder, Nakamoto, mined the starting block of the chain, known as the genesis block. This is a good example of the Lindy Effect, which essentially states that the longer a non-perishable item has been around, the longer it’s likely to persist into the future. For better or worse, Bitcoin, and other crypto tokens, are now a ‘thing’ and are likely to be with us for a long time to come, or at least another fifteen years, if Lindy is accurate. Spy was mulling this over with some new ETFs that have launched this week. Direxion has launched the Daily Crypto Industry Bull 2x Shares and the Daily Crypto Industry Bear 1x Shares for those who want to speculate on the most volatile of assets. Both are listed in New York, of course – but available through most brokerages.
Talking of ETFs, Spy was rather surprised to see that Saudi Arabia seems to be having an ETF moment in the Chinese sun. According to Caixin, two ETFs listed in mainland China tracking the Saudi market have both been “limit up” on Tuesday and Wednesday this week. China Southern Asset Management. and Huatai-PineBridge, the managers of the different strategies, made announcements yesterday about this. Spy has never thought that the baking sands of Arabia held much investment appeal in China, but as the Oscar winning screenwriter, William Goldman, once said of Hollywood, “Nobody knows anything” – this feels true of asset management too, on occasion.
Cometh the sell-off, cometh the contrarians, wonders Spy? This week hyped AI shares took a wobble and who should pop up to give the market an extra doubt or two? Goldman Sachs. In a podcast, worth listening to in full, Goldman’s equity research head, Jim Covello, asks the question, “What trillion-dollar problem will Al solve?” He goes on to say, “replacing low-wage jobs with tremendously costly technology, is basically the polar opposite of the prior technology transitions I’ve witnessed in my thirty years of closely following the tech industry.” The price of building AI capable data centres with their huge energy usage and processing power, may make things faster, but at what cost? And he is talking about dollars and cents not some notional cost to society in jobs. Spy certainly thinks it is worth contemplating, before diving back in.
Here is a nice question for a Friday afternoon, or even Friday over dinner. How many publicly traded equities are there in the US versus funds (both mutual and ETF)? The answer is quite shocking. There are now three times as many funds as there are listed stocks. Where have all the stocks gone? Spy’s answer? They have gone, or stayed, private. The onerous rules for listed firms makes the effort not worth it, especially when so much private money is available to make founders wealthy and provide sufficient capital to keep a firm growing. Regulators have much to answer for. By constantly trying to reduce risk, they have dangerously reduced the listed markets’ appeal, concentrating so much investment in an ever-smaller number of firms.
Did you hear about that new ESG fund launch? No, neither did Spy. The ESG era is clearly behind us. It broke this week that a diversity, equity, and inclusion (DEI) team leader at Microsoft whose entire team was laid off, has emailed thousands of employees describing DEI as “no longer business critical” at the firm. When a company such as Microsoft is no longer willing to ‘play the game’, perhaps the game is actually up?
Small caps, in almost any market, have been a hard sell for the last few years. Mega-caps, especially the Magnificent Seven, have made far too much money for small caps to move the dial. Spy spotted a chart this week that made him go, hmm. This is the ratio of US large caps to US small caps. It has not been this high since 1999. Well, we all know how that ended; history does not repeat, but it rhymes.
There is an old saying, “Those who understand interest earn it. Those who don’t pay it.” The US national debt is fast approaching $35trn, increasing by $13trn over just the prior five years, which is a whopping 59% increase. The next time someone wants to sell you a US Treasury bill, ask yourself, does the US government understand it?
Until next week…
