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Here Comes Summer

Well, June anyway. But what comes now is still anyone’s guess, says David Cowell of Myddleton Croft Investment Managers


Following an independent review of the MPC, the BoE announced it would be changing the way it carries out and announces interest rate decisions, including a move to publish the breakdown of the vote and the minutes at the same time as the decision on interest rates. I wonder if they will be publishing pictures of the dartboard they use to decide?


Sell in May??  So is a correction imminent? Depends on one’s definition: Deutsche sees the probability of a 5% correction as “high”, although the question is whether the S&P will slide by 10% or more in the coming months. It has been over three calendar years or more than 900 trading days since the last 10% market drop, the third longest period in history without a 10% drop, so yes: one could say we are indeed overdue.

MC chart May 29

 


Where’s next for a dose of QE? China perhaps? Not such a silly idea. The economy, whilst not exactly tanking (which rhymes with somewhere in China), isn’t performing well enough to support the current level of their stock market. Their habit of vastly overstating GDP growth can’t cover up the fact that the real figures are less than half the official ones. If their equities are in bubble territory now, what would happen if they did QE?


The Bank of Japan’s quantitative easing so far has successfully suppressed government bond yields, allowing the budget deficit to be funded at low cost. However, recent failed bond auctions have once again highlighted the risks of Japan’s monetary experiment: the country risks a fiscal and financial crisis if it fails to raise potential growth and stabilise its high government debt ratio. Following the Government Pension Investment Fund’s (GPIF) shift in allocation from Japanese bonds to domestic and foreign equity investments last year, three other large public pension funds have recently said they would follow suit.

Although such a move could mean Abenomics has succeeded in lifting inflation expectations, as investors have now sought inflation protection from high-yielding assets, it also raises concerns about a potential sell-off in Japanese fixed income instruments. If it happens in volume, it could underpin developed market equity prices.


So, the holier-than-thou FBI have pounced on FIFA. They have an interesting slant on justice in the good ‘ole USA. Arrest ‘em in the morning and condemn them by press conference the same day. I’m not saying they are or aren’t guilty; what I am saying is that if the Met had done that in London, no judge would allow the case to be prosecuted and rightly so. FBI/FCA/FOS, whatever.


A little boy was sitting on the footpath with a bottle of turpentine; he was shaking it up and watching all the bubbles. A priest came along and asked the little boy what he had in the bottle. The little boy said, ‘This is the most powerful liquid in the world; it’s called turpentine.’ The priest said, ‘No, the most powerful liquid in the world is Holy Water. If you rub it on a pregnant woman’s tummy, she’ll pass a healthy baby.’

The little boy replied, ‘If you rub this stuff on a cat’s backside, it’ll pass a Ferrari.’


 

 

Have a good weekend.

 

David Cowell

Director

For and on behalf of Myddleton Croft Investment Managers

1 Woodside Mews

Clayton Wood Close

Leeds

LS16 6QE

Tel:        0113 274 7700

Fax:       0113 274 7711

www.myddletoncroft.co.uk

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