Dear clients
I am sorry that writing this note to you is triggered by the sad events on the Ukraine border. By the time this reaches you circumstances may have changed but it currently looks likely that Putin and Russia will attempt to take over Ukraine. Lives will be lost and families torn apart.
There are many risks today. For a long time the transitory inflation forecast on both sides of the Atlantic appears to be far from transitory. Social media seems to give oxygen to extremist views. It seems possible that Trump could run for re-election. The Chinese regime is successfully cracking down on what most of us would recognise as democracy in Hong Kong. If Russia is successful in the Ukraine does this give China more chutzpah? Could China then think about reclaiming Taiwan? One company alone – the Taiwan Semiconductor Manufacturing Company has 50% of the global semiconductor market and 90% of certain more specialised lines. If the current semiconductor supply problems mean we have to wait a little longer for our next car, imagine what would happen if China invaded Taiwan.
Our inboxes are as full as ever with commentary from various “experts” talking about the imminent stock collapse, the end of a super cycle, and 100 variations on this theme.
The sad truth is that a lot of the time we live with great geopolitical uncertainty. And there are other risks, including climate change. If Russia invades Ukraine sanctions will follow and our gas prices will go up. But it is too late to take action. Markets know all about the troops massing on Ukraine’s borders, they know all about the supply chain difficulties, the inflationary threat and so on. All of these negatives are already contained in the price. UK oil prices have risen. Index linked gilts have adjusted to reflect both future inflation and also future interest rate rises.
In a highly liquid, well regulated market with multiple buyers and sellers, market prices are always fair value.
There are always doom sayers who predict downward spikes in markets. Some of them give materially unchanged predictions every year. Their forecasts of stock market collapse, property market collapse, bond market collapse or whatever are sometimes delivered incredibly convincingly. But we all forget these predictions until one year, eventually, one of these doomsters gets it all about right. The doomster will then make a huge name for themselves since it is clear that they have super human skills in their ability to predict the future. They have no such skills – they got lucky.
We have looked hard and there is no compelling argument that we have found nor is there any academic consensus that there is a tactic or process that we can use to minimise losses while reacting to world events. We continue to work with some of the great finance professors seeking to unlock the secrets of the market. For now, our advice remains to remain invested. Staying invested, in the long term, remains the best tactic. There are no good reasons to sell right now ( unless you need some cash ).
Capitalism and equities have been incredibly resilient performers over the long term. We recommend that you stay invested, even though we know with absolute certainty that equities will fall in value from time to time.
As ever, comments and queries are welcome
BS Feb 2022