I might be a couple of days late to the party but a very happy New Year to one and all. I kick off the new session from a rather waterlogged England where I too, believe me if you wish, am sitting in my “workspace” in the Cotswolds with water lapping around my ankles. However, the “Dunkirk Spirit” prevails and I will get on with things.
Anthony Peters
SwissInvest strategist
The first column of the new year ought really to be dedicated to making grand predictions of what should lie ahead of us in the coming 12 months. I wrote at the end of last year that 2014 could prove to be pretty boring with rates and currencies remaining reasonably stable, with equities and credit doing nicely if not spectacularly and with commodities finding a trampoline off which they should be able to bounce.
However, I was reminded yesterday of an advertisement once posted by the late, lamented house of Bear Stearns which had a guy standing on the back of a huge fish while dangling his line in front of its nose. The slogan – how apposite this would prove to become – was something to the tune of “Risk is what you can’t see….”
Our end of the Street wasn’t the happiest place in the world in 2013 and I know of more people who are happy to see the back of it than would wish for today to be the December 27. Nevertheless, I was dining with friends over the holidays when I was, somewhat to my own surprise, told that according to statistics (yes, I know….) 2013 was the best year the world has ever had. Global economic output was the highest ever, the number of people in work, globally, was the highest ever, the number of people dying from disease and in military conflict was the lowest ever and so on, and so forth. Malthusians took a heavy pounding. Strictly speaking, things really are set fair for the coming year.
It never goes according to plan
By now most of us should be smart enough to know that things in markets never go quite to plan and that if they did, they would offer no opportunities. It is easy now to sit back and to pontificate on how it was utterly predictable that no eurozone country would or could default and that buying Italy 10 years last June at 4.89% or Spain 10s at 5.11% was a slamdunk but at the time it wasn’t all quite so straightforward.
We now live in a world full of traders and portfolio managers who don’t know how to price or how to manage political risk. Actually, I’m not sure they’d recognise it if they saw it. I’m not talking of political risk being engendered by a bunch of self-satisfied fat cats on Capitol Hill but of proper, grown up geo-political risk.
From June 28 onwards – the centenary of the assassination of Archduke Franz Ferdinand of Austria in Sarajevo – we will be treated to lecture after lecture and TV documentary after TV documentary on the risks of misreading the messages of political stresses. In 1913 and early 1914 many contemporary commentators suggested war could not break out because the economic cost would be too high and because the politicians would never permit army leaders to imperil booming trade. Apart from that, ever more popular and influential Marxism eschewed militarism and with a burgeoning pacifist working class and a growing and ever more prosperous middle class with much to lose nothing could really go wrong. Oops!
However, my wet feet today remind me that the last time this once in a 100 years weather event hit my region was 2007. Yeah, yeah, sure – once in a 100 years! I certainly can’t see some self-perpetuating conflagration with millions of men sitting in the mud of Flanders and the Picardie or a repeat of the tragedy of Verdun but I can imagine growing tensions among the powerhouses of Asia – Japan, Korea and China to the fore – in the struggle for access to commodities and markets. In Europe, let’s face it, we already have a budding clash between the Russian bear and the European fox over political and economic influence in Ukraine even if it is at this point in time not ever referred to as that. Enough!
Closer to home, the US 2s/10s curve sits comfortable at 250 bp – I would be surprised to see that in significantly different territory at the end of this year unless the recovery stalls – which I don’t think it will. I doubt the Fed will stray too far from current policy under chairman Janet Yellen and I can’t imagine either the ECB or the BoE following any path which is radically different to the one which the Fed is beating. 2014 is set to be about “steady as she goes” unless, of course, we are standing on the back of a Leviathan.
All the best for the New Year, may all your bets work out and my you all succeed in finding something suitable to outperform.