Predictions. They are particularly difficult, especially about the future – as baseball legend Yogi Berra once put it. Wall Street investment bank analysts and just about every other strategist got 2023 wrong. The S&P 500 delivered a banner year of a 26% return, despite rising rates, geopolitics, wars both hot and cold, and just about every other concern under the sun. Why were the calls all so far out?
“One thing most people seem to forget is the sheer volume of new money coming into the market every month,” said a veteran portfolio manager to Spy over a very chaste espresso this week. “Formal pension systems, sovereign wealth funds and government-incentivised tax-free investment vehicles around the world, deliver an endless stream of cash that is always looking for a home. That is a pretty strong tide to fight against.”
News reaches Spy that BNP Paribas’s chief marketing officer Asia Pacific is relocating back to Paris from Hong Kong. Guillaume Wehry, has been in the role since February 2018 and prior to that he held several jobs with Amundi. Spy has no news on who will take over from Wehry when the move completes in the next few months. He is taking on a new position at BNP Paribas and will remain with the firm. Based on BNP Paribas’s outlook for 2024, the French firm is in a cautious mood and has concerns that “the recessions that seemed so certain to arrive in 2023, may simply have been delayed.”
As investors across the world grapple with the outlook for 2024, BNY Mellon Investment has released a rather nice infographic with some old-fashioned wisdom to judge the real state of the economy. It is worth looking at here.
For example, what do the sales volume of baked beans, men’s underwear or lipstick tell us about the economy? Spoiler alert: men, apparently, hold out buying new undies when times get tough, and women hold back on those shiny new lipsticks. When times are good people ditch tinned baked beans and buy more of them when things slow down. Spy’s favourite item on the list is the so-called ‘skyscraper effect.’ This is “a theory that the world’s tallest buildings rise just before an economic downturn. That is because tall buildings are often started during an expansion and completed after the onset of a recession.”
As far as ETF news is concerned this week, there seems to be only one story in town for Spy. The approval (or lack thereof) of a Bitcoin spot price ETF. The market entered 2024 with buzz and rumours, disappointment, shoulder shrugging and everything in between. Can the SEC in the United States hold out approval of these formats much longer? Already there seems to a be a pricing war emerging over the potential strategies, should approval finally be given. Fidelity has proposed in a filing that its Wise Origin Bitcoin Fund ETF would only charge 0.39%, about half of what other firms have proposed in their listing applications. All of this is just sound and fury, however, if the SEC continues to say, “Speak to the hand”. At the time of writing, Bitcoin was trading at $43,451 per coin.
An interesting comment in the Financial Times this week from Eric Veiel, head of global equity at T Rowe Price. “I do accept that the direction of travel is into lower cost products, I don’t accept that the direction of travel is into passive.” Huge active houses such as T Rowe Price have been suffering outflows as investors switch to lower cost strategies, many of which are simply passive vehicles to get market beta exposure. If Veiel is right, active is going to need a sustained period of showing its real value. In the main, over the last five years or so, that has not really been the case.
Anyone for a bond drawdown? The Bloomberg US Aggregate Bond Index is now in its longest ever drawdown since the Index began. For 41 consecutive months – since August 2020 in fact – a bear market has raged. During that period, the market has also experienced the worst drawdown in a single month -17.2%. Perhaps the inflation beasts will have been finally slayed when the drawdown ends?
With the danger of sounding like a banging gong, Spy was intrigued to see that the US government debt has increased by $2.5trn since the “debt ceiling” was suspended just seven months ago. US debt is now above $34trn. Is there any wonder gold and Bitcoin have rallied? The US government can’t just print those. And investors seem to have figured that out.
Until next week…
