This week we would like to offer our thoughts on certain megathemes that are impacting investment markets. Firstly, credit where it is due, this is a topic inspired by an oped in the AFR by James Thomson who summarises what he sees the recent bid by Cannon-Brookes for AGL represents. He categorizes the bid as representing three broad megathemes: 1) Energy Transition; 2) Private Capital; and 3) The Billionaire Activist. While we broadly agree with this categorisation, we would like to give our take on them and add in a final component that we feel is missing: the politicisation of everything.
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This week we again look to the headlines and look at an issue that has been front and centre for the markets, that of the Ukraine situation (perhaps a reprieve from the endless monetary policy commentary). Firstly, we begin with a rather macabre fact about the markets. Wars (we aren’t suggesting that this will be an all out conflict, at least in the traditional sense) aren’t necessarily bad for returns, think back to the First Gulf War. Looking through history, some of the best returns for equities investors in the first half of the last century were in fact the US’ entry into WWII (1942 - 1945) before entering into a period of what has been termed the postwar blues (1945-50). When was it they saw the next leg up? While it may be a touch oversimplified, entry into the Korean War. For the precious metals fans amongst you, gold hit all time highs over the course of the first year of the Soviet invasion of Afghanistan (1980).
Growing up it was ingrained that two topics are rather taboo to discuss at the dinner table; the first being politics and the second money. So, with the hope that you’re not having dinner as you read, this week we discuss the former while touching on the latter. Perhaps a subject that you may not be expecting to read about in an investment newsletter.
We begin the New Year with some interesting times in the market (has it ever been different?). Inflation Stateside is running at the highest pace in nearly four decades (i.e. 1981), the markets are expecting a tightening by major central banks, the PBOC being the outlier in going the other way in being increasingly accommodative, and Omicron continuing to gain traction. These are just a few of the headlines grabbing investors’ attention. So, with that in mind, let us go back to a basic question to begin the year, where to next? And more importantly where do we allocate? This week we seek to look at two elephants in the room, in answering these questions: monetary policy and geopolitics (which may very well present the next leftfield event).
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