December 2024
- Interest rates may come down in the US this week but as importantly market watchers will be looking for reductions in 2025 so the Jay Powell the boss of the US Federal Reserve may signal only another 0.75% for next year this is less than was signalled only a couple of months ago. It seems unlikely that our Bank the Bank of England will reduce rates this side of the New Year which is wrong in my view.
- US markets are bullish worryingly so since the US election. The US accounts for 27% of Global GDP but 70% of all global stocks says Ruchir Sharma in the Financial Times investors are committing to much capital to one area is this a good idea gone to far, as you will all know we do not over invest client capital in the US but in a calculated way. There is more and more talk about AI not being what its cracked up to be, however US firms are looking at earnings continuing a steady upward path.
- Geopolitical tensions have soothed in the Middle East Gold is down by about 6.5% over the last couple of months over the same period Crude Oil is mostly flat but volatile.
- There seems more focus on the state of national debt globally with Elon Musk charged to reduce debt in the US and Rachel Reeves doing her bit for the UK.
- See just below a brief reminder about how we set up our portfolios and a shout out to Mr Markowitz who developed the idea of Modern Portfolio Theory (MPT) which we use.
- “Markowitz’s genius was to realise a portfolio spread across lots of assets could have the same potential for returns as a more concentrated one but with less scope for losses, so in other words diversification allows investors to take less risk without sacrificing reward” quite some freebie and this is why we follow this process.
- Problems with the Chinese economy continues most of which centre on the property market even though there was a sudden surge when I wrote last month.
- The fixed interest market is still offering good opportunities for investors and this year has the potential to make up for some of the lost ground over the last two years. Unfortunately yields have risen in the US and the UK which is bad news for our portfolios mainly due to a lot of borrowing in the UK and the US and the bond markets having their say.
- What are we getting right:
- Staying away from direct investments in China.
- Selling low and buying low.
- Watching how the economy unfolds in Japan.
- Invested in Tech and staying with the US in general.
- Not selling off our Fixed Interest exposure and watching their value return.
- Watching out for cash accounts and short-dated bonds ceasing to offer attractive levels of return and what to do when this happens.
- What did we get wrong:
- Investments in Infrastructure and we took too long to move away from Agriculture; however, these areas are being corrected.
- Our portfolios are holding up well because:
- We continue to look out for structured products to place in our portfolios because by doing so introduces a certainty ingredient. However, they are not offering the risk-free returns they were.
- Our portfolios use fixed interest and fixed interest investments suffer when interest rates are high and there is more supply – this affects their value negatively. It should be remembered however, with fixed interest, you get your money back at maturity (which is not the case with other investments), so it’s a matter of holding these investments until interest rates start to come down or the investment matures.
Please note that:
- This information in isolation is not financial advice.
- Past Performance of investments is not to be relied on and the value and the income from investments can go up as well as down.
- It is advisable to regularly review your investments.
