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The global economy's three games
Chess masters can play simultaneously against several players. The more time passes, the more US President Trump's international economic strategy looks like such a match. There are three games.
| 13-11-18 | More -
Ideal money
Buffett called Bitcoin rat poison squared, Schiller called it a financial bubble. We disagree. Bitcoin is perhaps the most important financial innovation ever. And it is one step closer to "ideal money".
| 09-11-18 | More -
The global impact of a Chinese recession
When China finally has its inevitable growth recession, the world is likely to discover that China's economy matters even more than most people thought.
| 08-11-18 | More -
Speed kills - the US economy must slow down
The US economy needs to slow down. The key question is what causes it to slow and which markets fishtail as a result. It is time to be very careful with portfolios.
| 08-11-18 | More -
Falling share prices and the US economy
It wouldn't be surprising if the 10-year T-bill rises to 5% or more in the next few years, taking real yields back to over 2%, and causing the P/E ratio for US equities to return to its historical benchmark.
| 31-10-18 | More -
The world economy is facing a geopolitical inflection point
Ex-CIA Acting Director and economist, Morell worked with six US Presidents. He explains the current geopolitical inflection point that will affect the world economy for a very long time.
| 30-10-18 | More -
Are financial crises unpreventable?
Banking and finance are an extreme case of governance and policy failures, where the abuse of power and lack of trust in institutions undermine capitalism and democracy.
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Storm clouds for 2020
We give a 20% chance to a US corporate debt bubble burst before end 2020. It is both incredible and unconscionable that massive leverage could once again bring down Main Street a mere decade after 2008.
| 25-10-18 | More -
America's inflation risks
It was inevitable. Another upturn in the US inflation cycle is at hand. The Fed is entirely correct to send the message that there is considerably more to come in its current tightening cycle.
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Self-fulfilling financial crises
Since the global financial crisis, people have searched in vain for a more productive integration of finance, behavioral economics, and macroeconomics. The publication of a new book gives hope yet.
| 18-10-18 | More -
In this tug-of-war market, you need a bet each way
The world is getting very interesting. Two strong forces - the US economy accelerating vs tariffs getting bigger - are creating a tug of war that means you need to have a bet each way.
| 15-10-18 | More -
The myth of secular stagnation
There are many lessons to be learned as we reflect on the 2008 crisis, but the most important is that the challenge was – and remains – political, not economic. Secular stagnation was just an excuse for flawed economic policies.
| 18-09-18 | 3 comments | More -
farrelly's Investment Strategy (Australia)
Welcome to the farrelly's Dynamic Asset Allocation Australian subscriber only area...
14-09-18 | More -
farrelly's Investment Strategy (NZ)
Welcome to the farrelly's Dynamic Asset Allocation NZ subscriber-only area...
14-09-18 | More -
farrelly's Dynamic Asset Allocation Handbook (NZ Edition)
The quarterly Dynamic Asset Allocation is published electronically, and emailed to subscribers in early March, June, September, and December. It features farrelly's Editorial; long-term outlook for markets; Forecast in Focus; and three different approaches to Implementation...
14-09-18 | More -
The makings of a 2020 recession and financial crisis
As we mark the decennial of the collapse of Lehman Brothers, there are still ongoing debates about the causes and consequences of the GFC. By 2020, conditions will be ripe for a new financial crisis.
| 14-09-18 | More -
farrelly's Dynamic Asset Allocation Handbook (Australian Edition)
The farrelly's Dynamic Asset Allocation Handbook features editorial exploring investment strategy "hot topics", farrelly's long-term forecasts for asset classes, a detailed review of the long-term forecasts for an individual asset class (rotating across asset classes each quarter) and three asset allocation models to assist with implementation...
14-09-18 | More -
Today’s flattening yield curve: what does it imply?
The fallacy that an inverted yield curve "predicts" the onset of recessions is alive and well. Many investors believe the curve will invert in 2019, precipitating a recession. But a flattening of the yield curve need not imply a recession.
| 25-08-18 | More -
Cyber conflict is a threat (to future-proof portfolios)
In the cyber world today, we are somewhere around World War I. There are more than 30 nations with effective cyber forces. Practitioners need to understand the threat cyber weapons pose to markets and investments.
| 24-08-18 | 1.00 CE | More -
China will be a high-tech global power within two decades
The People's Republic of China (PRC) invests heavily in high technology research. While the world will certainly benefit from the PRC's technological ambition, it also has challenging implications.
| 24-08-18 | 0.25 CE | More -
Designing portfolios for scenarios is critical to future-proof portfolios
A disciplined, scenarios-based approach to determining your views on the outlook for markets and the asset allocation implications can help future-proof portfolios. This hypothetical Investment Committee meeting considers the asset allocation implications of three scenarios.
| 24-08-18 | 1.00 CE | More -
The tech revolution will radically change how the economy works
The Australian (and global economy) is facing decades of significant technological change that will reshape how we work, where we work, and how we relate to each other economically and politically.
| 24-08-18 | 0.25 CE | More -
Why we get it wrong - culture not companies dictate trends
Investors need to entirely rethink their processes, assumptions and research approach, to focus on the cultures of consumers in different markets. Only by thinking like new brands themselves, can investors identify and invest in the next powerful emerging trend.
| 24-08-18 | 0.50 CE | More -
Past performance is not indicative of future performance
The familiar phrase “Past performance is not indicative of future performance” is so common we almost ignore it, but it goes to the heart of how to view and manage risk and return to future-proof portfolios.
| 24-08-18 | 0.50 CE | More -
Future proofed portfolios need growth equities
Investors should learn the lessons of history. Looking beyond near-term valuation multiples can help identify the next great winners and also help avoid the losers. Without growth investing, a portfolio is only focusing on only one side of the equation.
| 23-08-18 | 0.50 CE | More -
Valuation mistakes will prove very costly in a post QE world
Future proofing portfolios is a difficult task, due to today’s demanding valuations and because the future is intrinsically unknowable. There are no set-and-forget strategies in a world of ever-changing prices.
| 23-08-18 | 0.25 CE | More -
ABS are now more "Moneyball" than "Big Short"
Global Asset Back Securities were directly tested and survived the challenges of 2008. In this rising rate environment, they are well placed to help "future-proof" portfolios.
| 23-08-18 | 0.25 CE | More -
A borderless approach delivers better EM investment outcomes
The investment opportunity in EM is greater than just the companies domiciled there. In essence, investing in global growth should not simply be defined or determined by where a company receives its mail.
| 23-08-18 | 0.50 CE | More -
Future-proof portfolios? Key takeouts
Investment portfolio construction is, by definition, an exercise in long-term thinking. Given the uncertainties and competing priorities, are future-proof portfolios achievable? Practitioners share their views.
| 22-08-18 | More -
People underestimate the depth & length of "normal" drawdowns
Due to biases in investing, Sharpe ratios of investor portfolios are often not as high as investors expect. How low can a random walk of a Sharpe ratio wander through the natural realisation of risk?
| 22-08-18 | 0.50 CE | More -
Investment crystal balls broken or imperfect
Investors have long relied on two crystal balls when predicting future returns: equity risk premium and the yield curve. Crystal balls have their place, so long as they are combined with an uncommon degree of common sense.
| 21-08-18 | More -
Designing for scenarios is critical to future-proof portfolios
A disciplined, scenarios-based approach to determining your views on the outlook for markets and then the asset allocation implications can help future-proof portfolios.
18-08-18 | More -
Just how dumb are the bond markets?
If US bond rates go higher from here, it is likely to be in response to something we don't yet know, rather than what is already out there. Markets are not nearly as dumb as many suggest.
| 03-08-18 | 2 comments | More -
IMAC-S1BS1: Applied Economics
This lecture instructs Investment Management Analyst Course (IMAC) candidates on the fundamental of applied economics with an Australian perspective.
| 01-08-18 | More -
QE turns 10
November 2018 will mark the tenth anniversary of quantitative easing - undoubtedly the boldest policy experiment in central banking modern history. There are five key lessons learned from QE.
| 31-07-18 | More -
Passive is not the way to go when investing in Asia
Differences in regulation, politics, and transparency between Asian countries are all factors that cannot be captured by passive investing but which represent opportunities for active investors.
| 30-07-18 | More -
The global economy's uncertain future
The sustainability of global growth depends largely on the US and China. One hopes that someone close to Trump can turn him around before his policies derail the world's long-awaited recovery.
| 23-07-18 | More -
Trump may kill the global recovery
For the first time in a decade, the biggest risks are now stagflationary (slower growth and higher inflation). It would seem that the current risk-off era is here to stay.
| 19-07-18 | More -
We're on the cusp of an EM crash
For 10 years, the world chased yield - flows into emerging markets were massive. As rates rise, money will move to safer environments. It’s time to protect portfolios against major outflows from emerging markets.
| 16-07-18 | More -
Geopolitics to the fore! Do nothing...
There is quite a bit happening on the geopolitical front right now to concern markets. With all this uncertainty, the best thing to do is nothing. Sit tight and enjoy the show.
| 09-07-18 | More -
When politics trumps economics
Trump and team continue to flaunt virtually every principle of conventional economics. A trade war may well be an early skirmish in a much tougher battle, during which economics ultimately trumps Trump.
| 27-06-18 | More -
Forum Fodder 22 June 2018
This week in Forum Fodder: Susan Lund – a corporate debt bubble?; Aaron Minney - most investors need to eat capital; Michael Furey - Investment faux pas; Tom Switzer - Don’t write off America; Douglas Isles - Beware the trifecta of desire
| 22-06-18 | More -
Are we in a corporate debt bubble?
Since the GFC, the value of non-financial companies' outstanding bonds has nearly tripled. While a correction seems likely, the broad shift toward bond financing is actually a welcome development.
| 20-06-18 | 2 comments | More -
Can the Euro be saved?
The euro was supposed to bring shared prosperity, which would enhance solidarity and advance the goal of European integration. In fact, it has done just the opposite, slowing growth and sowing discord.
| 15-06-18 | More -
Italy, tariffs are sideshows – the US is the main story
With US unemployment running at just 3.8% (equal lowest rate since 1969), the Fed will have to hike rates four times this year, with the risk that bond yields go not just to 3.5% but somewhere well north.
| 13-06-18 | More -
Netflix will be the next dominant digital business
Over-the-top streaming will become the dominant form of media consumption, and Netflix will be the dominant global provider. Near-term valuation multiples may ultimately prove cheap.
| 12-06-18 | More -
Beware Quantitative Tightening!
Quantitative Tightening is jangling the nerves of investors around the world. It's unprecedented and so no-one knows for sure exactly how it will play out. But all the evidence points to QT being a non-event.
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The old allure of new money
There are now nearly 2,000 cryptocurrencies, and millions of people worldwide are excited by them. As with past monetary innovations, a compelling story may not be enough.
| 31-05-18 | More -
Cash is the alternative asset class
Many asset classes - such as real estate and infrastructure - face the same valuation headwinds as equities and bonds. Practitioners should consider using cash as the diversifier for multi-asset portfolios.
| 29-05-18 | More -
Markets creak as yields creep higher
Calm returned to global stock markets in May. But investors should not be lulled into a false sense of security. Equities and bonds face considerable headwinds as the Fed continues to tighten.
| 28-05-18 | More -
Masterclass NZ 2018 - resources
Masterclass NZ is a post-graduate extension program focused on contemporary issues that are fundamental to building better quality portfolios. Each year, the one-day program features five research-based, active learning sessions.
25-05-18 | More -
Do stocks outperform Treasury bills?
It is generally accepted that stock markets provide long-term outperformance over cash. However, a recent academic research paper reveals this is not the case for the majority of stocks since 1926.
| 08-05-18 | 1.00 CE | More -
Donald Trump's Normal Fed
In a presidency that has shown little regard for conventional institutional norms, how can one explain Donald Trump's completely reasonable appointments to the Federal Reserve Board?
| 07-05-18 | More -
The true impact of a trade war
President Trump's protectionist threats have raised the risks of a serious trade war, the first in over 80 years. It is assumed that this would materially impact US growth - but is that the case?
| 04-05-18 | More -
Bill Phillips - the Man, the Myth, the Curve
The consensus view is that the Phillips Curve is dead. To understand it, you must understand the history of the model and the Kiwi who first researched the link between unemployment and wages.
| 02-05-18 | More -
Is realism trumping populism?
Around the world, populist economic policy seems to be in retreat. Even in Britain, a majority support a “meaningful vote” on whether the final deal with Europe is genuinely better than staying in the EU.
| 30-04-18 | 3 comments | More -
Markets aren't pricing rates to revert to the old normal
That's the view that Guy Debelle, Deputy Governor of the RBA, outlined in a recent speech. It's a timely warning - but what do we do with it? I think it depends on your investment time horizon, as do so many investment decisions.
| 27-04-18 | More -
Policy blunders and currencies
Nearly all recent initiatives of the Trump administration will prove to be macroeconomic blunders. The time has come to upgrade the credit quality of investment portfolios and to focus on the currencies of creditor countries.
| 20-04-18 | 0.50 CE | More -
Stay focused, ignore the noise
Fears of a US-China trade war contributed to recent stock market volatility. Practitioners must look beyond the market noise and focus on the medium-term outlook.
| 16-04-18 | More -
The global trade game
The US/China trade confrontation is heating up and market analysts are scrambling to figure out what will come next. It's tempting to rely on historical experience but history is likely to be a poor guide.
| 10-04-18 | More -
Disruptive technologies will revolutionise healthcare
Genomic medicine will radically change how diseases are diagnosed and treated. Healthcare valuations do not currently reflect the long-term opportunities in the sector.
| 03-04-18 | More -
2018 IMR Workshop
The annual Investment Management Research Workshop showcases early stage research in the area of investments to a practitioner and academic audience. It is an initiative of the Investment Management Research Program which is presented by Portfolio Construction Forum, in collaboration with faculty of the University of Technology Sydney (UTS) Business School. The IMR Program succeeds the UTS Paul Woolley Centre.
26-03-18 | More -
Small caps are thriving in the global upswing
Around the world, smaller companies are benefitting from robust economic growth, low base rates and balance sheet flexibility. Investors should focus on opportunities in Japan and Europe.
| 22-03-18 | More -
Making the case for sovereign GDP-linked bonds
The time has come for national governments around the world to start issuing their debt in a new form, linked to their countries' resources.
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Latest US stimulus is a red flag
There is now a 50% chance that the US Federal Reserve will hike interest rates more sharply than markets expect, leading to a recession in the next one to two years.
| 13-03-18 | More -
Economists vs scientists on long-term growth
Neither policymakers nor markets should bet on the past decade's slow growth carrying over to the next. The best bet is that AI and other technologies will have a much larger impact on growth than up to now.
| 12-03-18 | More -
IMAC-S2CS1: Fixed Income Investments
This lecture instructs IMAC candidates on properties of fixed income markets, the investment features and risks of bonds, the application of the time value of money to the valuation of bonds, and the concepts of duration and convexity and their application to bond portfolio management.
| 08-03-18 | More -
The blockchain pipe dream
It is high time to end the hype. Bitcoin is a slow, energy-inefficient dinosaur. Most of the coins are little different from railway stocks in the 1840s, which went bust when that bubble – like most bubbles – burst.
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Beware the Bond-cano!
The peddlers of the Bond-cano narrative give very different recommendations. Even if we buy the story, it's just not clear what to do - all of which suggests that it is just a wonderful narrative.
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Rational irrational exuberance?
In my opinion, the asset-price volatility we have been seeing has little or nothing to do with changes in fundamentals. And the widespread use of machine-driven trading is likely making all of this worse.
| 02-03-18 | More -
Working toward the next economic paradigm
It should come as no surprise that enthusiasm for economic and financial globalisation has faltered. Building consensus around a revised unifying paradigm will not be easy.
| 01-03-18 | More -
Research Review: Everything you need to know and a bit more
In nine pages, this paper says all that needs to be said on the ability of any of us to estimate the true value of financial assets. The next two papers produce conflicting findings on the impact of index investing on markets.
| 28-02-18 | 1.00 CE | More -
Comments on financial market turbulence
Was the recent market volatility predictable? Was the volatility exogenous or endogenous in nature? What lies ahead as regards inflation and interest rates?
| 22-02-18 | More -
Markets are heading into extra time
When building portfolios, practitioners must consider that inflationary pressures may return and that "beautiful normalisation" may simply not exist.
| 20-02-18 | More -
Threat of a wages blow-out is real
With unemployment at 30-year lows in many countries, practitioners should consider the possibility that wage pressures may force policymakers to tighten more aggressively, triggering substantial equity market falls.
| 19-02-18 | More -
Unwinding the great QE carry trade
Let's be absolutely clear - the recent plunge in equity markets has almost nothing to do with inflation or a changing of the guard at the Fed.
| 15-02-18 | More -
Cryptocurrencies are a new epoch in monetary history
The Chinese authorities recognise the potential of blockchain technology and are outpacing the US, in the race to develop an "official" cryptocurrency. If the Chinese experiment succeeds, we may witness the start of a new epoch in monetary policy.
| 13-02-18 | 0.50 CE | More -
Changing gears? Panel 3
For Australian investors, are international markets still attractive sources of growth? Or is the Australian equity market more attractive? Do Australian sovereign bonds remain an anchor portfolio allocation for well diversified portfolios?
| 13-02-18 | 0.50 CE | More -
China’s Belt and Road Initiative is less than meets the eye
China’s Belt and Road initiative is expected to reshape the global economic landscape. However, the plan is poorly understood. It may generate political "returns" but opportunities for investors will be limited.
| 13-02-18 | 0.25 CE | More -
Don’t write off America
To paraphrase Mark Twain, reports of America’s retreat are greatly exaggerated. Even if China can sort out its long-term demographic problems, other big challenges loom.
| 13-02-18 | 0.25 CE | More -
The reflationary regime will persist and propel risk assets
In 2017, the global economy experienced synchronised acceleration for the first time in a decade. The regime shift now underway will challenge portfolio construction designed for the previous regime.
| 13-02-18 | 0.25 CE | More -
Bonds are more important than ever
The diversification benefits of bonds increases in a low yield market, and bonds remain one of the best instruments available to investors looking for liability matching as they approach retirement.
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The assumption of unendingly low interest rates is dangerous
Investors should focus more than ever on uncovering sources of idiosyncratic alpha, rather than relying on momentum or passive beta.
| 13-02-18 | 0.25 CE | More -
Europe: It’s a long way to the top
It is doubtful that "safe" exposures (global consumer giants) will earn investors strong returns from this point – shift gears rather to domestic European exposures.
| 13-02-18 | 0.25 CE | More -
Electric vehicles are not game changing
Consensus appears to assume that electric vehicle adoption rates will increase dramatically. This view is misplaced. The impact on the oil price and equity market leadership is not something that investors are positioned for.
| 13-02-18 | 0.25 CE | More -
As we approach peak growth, gear down risk allocation
The global economy is approaching peak growth and investors should prepare for increasing left tail risks. This may be an opportune time to increase allocation to bonds as an insurance policy.
| 13-02-18 | 0.50 CE | More -
Investors need growth equities as change accelerates
Structural change and the resulting earnings growth will always outrun interest rates in the long run, so as change continues to accelerate, investors need growth equities in their portfolio.
| 13-02-18 | 0.50 CE | More -
Bonds are no longer a reliable risk diversifier
Simply holding bonds no longer diversifies an investment portfolio, with genuine risk diversification better achieved by exploiting currently under-priced risk premia in volatility and inflation markets.
| 13-02-18 | 0.25 CE | More -
Avoid constant gear changes with a generational perspective
Whether an investor's investment horizon is three to five years, 10 years, or even 30 years, they would benefit from taking a generational perspective to enhance returns.
| 13-02-18 | 0.25 CE | More -
Global Bonds - It’s time to shift gears from auto to manual
Data from the larger economies generally support the scenario of synchronised global expansion. The biggest risk to portfolios is strong growth and investors need to position themselves in anticipation of rising rates.
| 13-02-18 | 0.25 CE | More -
Licence To Tilt – DAA can overcome lower returns
Historical asset allocation methods will not generate appropriate returns in the period ahead, driving the need to be more dynamic to increase both absolute and risk-adjusted portfolio returns.
| 13-02-18 | 0.25 CE | More -
Changing gears? Panel 2
Will global synchronised growth drive earnings growth to a higher gear that warrants current elevated valuations? And should the early effects of technological changes influence investment choices now?
| 13-02-18 | 0.50 CE | More -
Bond yields will rise much more than the Fed is letting on
Bond yields may rise by up to 90bps a lot faster than the Fed is suggesting. It's time to consider what happens to your portfolio if bond yields change gears.
| 13-02-18 | 0.25 CE | More -
Incorporate tech’s impact in your investment choices
Technological change is advancing with unprecedented speed and scale. The early effects of these technological changes on growth, labour, policy and trade should influence investment choices now.
| 13-02-18 | 0.25 CE | More -
Ignore the exit ramp, better conditions ahead
The US might have three to five years of additional growth ahead. Global synchronised growth is likely to drive earnings growth to a higher gear that warrants current elevated valuations.
| 13-02-18 | 0.25 CE | More -
Changing gears? Panel 1
Are we in for a global inflation shock leading to significantly higher bond yields and a recalibration of relative valuations? Are we close to a one-in-a-generation change in the world's monetary order? Should we be switching gear with portfolios?
| 13-02-18 | 0.25 CE | More -
Focus on what’s important!
Global economies and central banks are changing gear. Should you be switching gear with your portfolios? To answer, you need a laser focus on what is important for you.
| 13-02-18 | 0.25 CE | More -
Things (in the economics world) are broken
Every generation or so, things (in the economics world) break. Indeed, the history of the world's international monetary order is a history of change, occurring on average every 40 years. This current system is, therefore, long in the tooth.
| 13-02-18 | 0.50 CE | More -
Brace yourself for a global inflation shock
A combination of factors is set to generate an unexpected inflationary shock to the financial markets, leading to significantly higher bond yields and a recalibration of relative valuations.
| 13-02-18 | 0.25 CE | More -
Is the stock market loaded for bear?
We are moving ever closer to the date when payment for today's recovery will fall due. Recent capital market gyrations suggest that awareness of the inevitable reckoning is already beginning to dawn.
| 12-02-18 | More -
2018 Markets Summit - program & prep
Markets Summit is THE investment markets scene setter of the year. The program features 20+ leading investment thinkers from around the world - geopolitical specialists, economists, market/asset class experts, and investment strategists - debating their best ideas on the key drivers of and medium-term outlook for the markets in the context of the theme - Changing gears? - and the implications for portfolios.
12-02-18 | More -
The next 30 years
There are themes and stocks that last for decades. Whether the investment horizon is three to five years, 10 years or even 30 years, it is likely investors will benefit from thinking about the universe of themes and stocks for generations to come.
| 08-02-18 | More -
Sustainability is crucial to infrastructure returns
Infrastructure assets have large environmental footprints. Incorporating ESG factors into the infrastructure investment process can improve risk-adjusted returns.
| 08-02-18 | More -
Things break
Every generation or so, things (in the economics world) break. We're probably at or close to one of those once-in-a-generation moments. Watching monetary indicators is key.
| 07-02-18 | More -
The blind assumption of unendingly low rates is dangerous
The general uptrend in the broader equity market seems set to continue given economic data globally remains robust and central banks very accommodating. Given divergent risks, investors should focus more than ever on uncovering sources of idiosyncratic alpha, rather than relying on momentum or passive beta.
| 07-02-18 | More -
Cryptoassets is an emerging asset class with huge potential
Technological revolutions often spawn financial booms and busts - but the value proposition of blockchain is profound, and the technology has given rise to cryptoassets. Practitioners will increasingly be required to understand them.
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The impact of technology on economic growth
There are five areas where the early effects of technological change on the world economy are believed to be investible today.
| 05-02-18 | More -
Giddy markets and grim politics
Headlines seeming to portend political instability and chaos have not prevented stock markets from soaring. What gives?
| 19-01-18 | More -
10 "fearless" predictions for 2018
It is the time of the year when those in the forecasting business like to lay out our expectations for the coming year. Here are mine...
| 18-01-18 | More
