Transitory inversion

Reading Time: 5 minutes

Here’s my latest fortnightly real talk markets newsletter, in this edition: Q1 mumble, inflation, climate, the new triple-peak workday and Bill Gross is still standing. If you like it, please subscribe over on substack:

How’s your week? I got followed by the real Bill Gross on Twitter y’all. So it’s been that kind of a week (more on Bill below, he’s been busy). Spring? It’s been raining 1’s and zero’s in London this week. Maybe it’s just transitory.

We get asked about podcasting a lot. So much that we decided to record an episode all about … podcasting. If you’re thinking about audience, content, etc it might be worth a listen (web | apple). We also sat down with Professional Trustee Graham Jung and asked what consultants and asset managers miss, so you might be interested in that… (web | apple)

Ok, let’s do markets, Q1 is in the books and … your official equity market returns for Q1 were -5% for both global equity (MSCI World) and S&P.

Your markets mumble of the week: inversion. It’s powerful apparently. So powerful it’s predicted 10 of the last 7 recessions. Quoting the meme of the moment John Authers asks whether this is the slap that markets might need to take note of right now.

Maybe we need to add the inversion to the long list of current market worries, maybe we don’t, maybe it makes no difference. We’re still just a whisker off all time highs in stock markets. Your cryptos were back to flat for the year for a moment, now off a little again.

Markets went up for a good while there then they went down – partly because they’d gone up so much and for so long. I honestly thought the Elon Musk twitter thing was an April fool that got delayed in the social algorithms … apparently not. I guess the chief-trolling-officer is now on the board. What could possibly go wrong.

Now do bonds. Watch out for that duration.

Step back: what if I told you in January 2020 that a new virus would kill 6 million people, a brutal war would displace 7 million and unravel the post WW2 order, inflation would soar, the Fed embarked on a series of rate hikes, yet the S&P would gain 46% in total return? [Greg Zuckerman on Linkedin]

Three things I’m reading

  1. THE DEAN WILL SEE YOU NOW. Professor Aswath (“the Dean of Valuation”) Damodaran is out with his equity market update. His new numbers peg the equity risk premium steady at around 4.7%, and with the bump up in risk free rates that points to an expected return on equities over 7% for the first time in a while. Of course the professor doesn’t have a monopoly on expected returns or a crystal ball, but it’s a good data Image

2. The IPCC climate report (part 3: mitigation strikes back) is out – a little late due to government haggles on wording, and yes it matters for investors. Best summary here. 3500 pages but what’s the tl;dr? It’s about the next decade. Net Zero isn’t about 2050 but 2030, and umm, that really isn’t so far away now is it. Also it’s not what the report said but what it represents: the consensus of ALL governments. Also there’s some uncomfortable truths for readers – well off consumers in the developed world are responsible through their consumption for far more than developing countries *stares at shoes* ( you can read more about my own carbon footprint here)

3. The world’s changed

So I was going to do a joke about inflation and rising coffee prices – it’s grinding higher all the time, but there’s so much more than that going on when you read what campaigner Jack Monroe is talking about on twitter, and it’s really not a joke. Inflation might just be a number in a spreadsheet or an inconvenience to some but to say it’s a dire time right now for millions of people in the UK is an understatement. The impact on living standards this year is akin to the severest recessions in living memory. Consider a donation to your local community foundation, or Fareshare if you’re in a position to. Good charities doing important work.

That said, INFLATION (yeah, duh). I’d been waiting for someone to do this global inflation chart, and the FT have done it – great piece of dataviz. Huge areas of the world now with 6%+ inflation level. Seems obvious now, but it’s a big structural shift. My piece on why the investment industry isn’t prepared for it is getting a lot of hits.

Two things I’m listening to

1. This could be one of the most important & powerful interviews you’ll listen to this year. The Economist went to Kiev to speak to Volodymyr Zelensky (recorded before the terrible headlines of last weekend – I have no words – but still very relevant). Enough said.

The Intelligence (web | apple)

The Economist Asks (web | apple)

2. Bill Gross is still standing, and he’s on Barry Ritholtz’s podcast (I find this one is better listened to with Elton John loud in the background). This is a putback to Mary Child’s Bond King book we discussed last time. I’ll be honest initially I found it hard to buy into the “humble billionaire” schtick, but by the end he almost had me. Listen, it’ll surprise you. I might even check out his book – as an earlier pioneer of the “newsletter with a personal twist” I’m up for checking out his style.

Masters in Business (web | apple)

Bonus froth –

We spoke before about why you’ve got too many meetings so let’s talk “meeting” inflation, Microsoft found that meetings per person are up 250% compared to 2020 – shall we pop some time in the diary to discuss? The study also found evidence of a new workplace trend: the “triple peak day” and the 9pm shift. Ugh. Is there an unlike button? [Atlantic article]

One thing to brighten your day:

I for one did not see the “future of Oxford Street as the candy shop from hell” coming, did you? What’s this about? Have a great end to the week!

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