Alternative to Smithson

NedS

Thrugelmir said:

@Shocking_Blue  Brief synopsis. As a result of the GFC (2007-2009) Central Banks were forced to step in and provide liquidity to the financial markets (primarily QE but also a range of other measures). Base rates fell as well.  BOE base was 5.75% in July 2007, 0.5% by March 2009.  At the G10 summit in May 2010. It was agreed that banks would need to deleverage their balance sheets (Basle III).  As an example Barclays was lending £72 for every £1 of capital held. Basle III objectives have yet to be met I should add.  Governments would reduce their balance sheets once this was achieved. All with the aim of maintaining financial stability. 

The world is chugging along. Everyone expects Central Banks to shortly stop/reverse their policies and reduce fiscal support. Along comes Covid. Governments print money. Money flows into assets and inflates prices. Shortage of goods and a world awash with cash induces inflation (i.e. second hand car prices). Central banks need to control inflation, as is there mandate, and start to unwind their billion/trillion £/$ balance sheets. Interest rat rises get pencilled in. As inflation is no longer viewed as transitory but baked in. Governments are still borrowing to fund the cost of the pandemic. Central Banks may no longer buy up debt. Cost of debt servicing will therefore increase, i.e. higher yields on new Government bond issuance. As investors demand this at auction. Higher bond yields reduces the equity risk premium. Making equities less attractive at current price levels. 

Companies themselves face increased costs. Higher wages, higher employment taxes, higher levels of corporation tax , higher energy costs, higher input and raw material costs and finally increased cost of servicing debt. Not forgetting that many have had a torrid past two years. Borrowed large sums to see themselves through the pandemic. 

In summary amounts to a considerable headwind. With consumers being squeezed as well. Challenging times for many people and organisations. 
 

Very nice summary...

Which all paints a pretty bleak outlook, and all the while equity markets (e.g, S&P500) continue(d) to march ever higher. I continue to be amazed by the apparent complete disconnect and remain skeptical / cautious / bearish about prospects for the next 5-10 years

Thrugelmir

NedS said:

Thrugelmir said:

@Shocking_Blue  Brief synopsis. As a result of the GFC (2007-2009) Central Banks were forced to step in and provide liquidity to the financial markets (primarily QE but also a range of other measures). Base rates fell as well.  BOE base was 5.75% in July 2007, 0.5% by March 2009.  At the G10 summit in May 2010. It was agreed that banks would need to deleverage their balance sheets (Basle III).  As an example Barclays was lending £72 for every £1 of capital held. Basle III objectives have yet to be met I should add.  Governments would reduce their balance sheets once this was achieved. All with the aim of maintaining financial stability. 

The world is chugging along. Everyone expects Central Banks to shortly stop/reverse their policies and reduce fiscal support. Along comes Covid. Governments print money. Money flows into assets and inflates prices. Shortage of goods and a world awash with cash induces inflation (i.e. second hand car prices). Central banks need to control inflation, as is there mandate, and start to unwind their billion/trillion £/$ balance sheets. Interest rat rises get pencilled in. As inflation is no longer viewed as transitory but baked in. Governments are still borrowing to fund the cost of the pandemic. Central Banks may no longer buy up debt. Cost of debt servicing will therefore increase, i.e. higher yields on new Government bond issuance. As investors demand this at auction. Higher bond yields reduces the equity risk premium. Making equities less attractive at current price levels. 

Companies themselves face increased costs. Higher wages, higher employment taxes, higher levels of corporation tax , higher energy costs, higher input and raw material costs and finally increased cost of servicing debt. Not forgetting that many have had a torrid past two years. Borrowed large sums to see themselves through the pandemic. 

In summary amounts to a considerable headwind. With consumers being squeezed as well. Challenging times for many people and organisations. 
 

Very nice summary...

Which all paints a pretty bleak outlook, and all the while equity markets (e.g, S&P500) continue(d) to march ever higher. I continue to be amazed by the apparent complete disconnect and remain skeptical / cautious / bearish about prospects for the next 5-10 years

Idle conditions for active portfolio management to prosper in my personal opinion. There'll always be investment opportunities. A falling market doesn't mean that all company share prices are red, some will be black. No need to risk all the gains made in recent years if one is cautious. 

NedS

Thrugelmir said:

NedS said:

Very nice summary...

Which all paints a pretty bleak outlook, and all the while equity markets (e.g, S&P500) continue(d) to march ever higher. I continue to be amazed by the apparent complete disconnect and remain skeptical / cautious / bearish about prospects for the next 5-10 years

Idle conditions for active portfolio management to prosper in my personal opinion. There'll always be investment opportunities. A falling market doesn't mean that all company share prices are red, some will be black. No need to risk all the gains made in recent years if one is cautious. 

I agree, quality companies on sensible P/E ratios with strong earnings and balance sheets, a competitive moat, and the ability to weather inflation by passing on increased costs to their customers are likely to do well. I like Mid Wynd for this reason, combined with the fact they will not buy at any price, but will only build a position when they feel the price is attractive, hence I'm looking to deploy capital in their direction upon further price weakness. I wish the fund portfolio was a little larger to increase diversification, so may look for other similar funds to increase diversification, but I'd certainly rather hold 300 quality companies at the moment than 3000 companies in a global equities tracker.