FYI | Jun 07 2017
By Peter Switzer, Switzer Super Report
Is it time to sell everything? The case against it, now
Phil Parker’s decision to hand back his clients’ monies from his Altair Asset Management has surprised most of his colleagues in the fund management caper. Some have said it seems odd that when it becomes tougher to make money, he opted to pull up stumps and take his bat home.
Others say it’s easy to make money when the market and the index are on the rise, but good fund managers earn their fees, which are often too large, when they create better-than-average returns in tough markets.
Parker supporters, though I haven’t seen many, might argue if the market crashes, his “sell everything” play underlines his genius. That’s true and knowing him as I do, he’s smart to realise that a big call that turns out to be right will leave him as a ‘market genius’, which will bring him a pile of investor dough after any such crash.
Meanwhile, he won’t get much coverage of his premature extrication from the market call if a crash doesn’t show up this year. The media’s short memory makes them look very forgiving, but it might be a ‘people who live in glass houses’ thing.
After all, who recalls the Royal Bank of Scotland expert who on January 11 last year told his clients to get out of the market? He was Andrew Roberts — the bank’s research chief for European economics and rates.
And he tipped Wall Street and European stocks to fall by 10% to 20%, with even a deeper slide for the FTSE 100 given its high weighting of energy and commodities companies. “London is vulnerable to a negative shock. All these people who are ‘long’ oil and mining companies thinking that the dividends are safe are going to discover that they’re not at all safe,” he said.
I wonder if he’s still at RBS?
Then there was BT’s Vimal Gor, who had the Oz dollar dropping to 40 US cents! Need I say more?
Big call merchants are big risk-takers and while they run the chance of looking silly, as I say, the media seems to forgive and forget.
For example, how many times has the US expert, Harry Dent, come here to flog his newest book predicting doom and destruction, and the media has gone along for the ride? One day, Harry will be right and there will be second-rate media scribes who will give him column inches for the sake of click bait!
Personally, I don’t think this is a ‘sell everything’ moment for stocks, and if it were, I couldn’t say 100% I’m going to see it. But as you all know, I watch the big market moving trends virtually 24/7, and even when I’m in Italy, as I am now, my eye is not off what could hurt our portfolios.
In fact, in building the case against Phil’s big play, significantly, Italy has shocked the pundits by growing at 0.4% instead of the predicted 0.2% in the first quarter. And annual growth has gone to 1.2%, which is the best since 2010!
In fact, the European story has shocked many economists. This is the latest take on what was seen as a very troubled economic region: “The Euro zone economy climbed by 1.7% in the first three months of the year compared with the same period of 2016 and the EU grew by 2%.
“In the last quarter of 2016 the increase was 1.8% in Euro zone and 1.9% in EU.
“The highest growth rates across the EU were recorded in Romania (5.6 percent), Poland and Lithuania (4.1%), Latvia (3.9%), Hungary (3.7%) and Bulgaria (3.4%). Meanwhile, the Greek economy fell by 0.5 percent.” (Business-review.eu)
This good European story is even being noticed by the Yanks, who can be very hometown biased.
“European economic growth is gaining momentum and political risks have receded. Hopes of reforms and faster economic growth in emerging markets have improved their outlook significantly,” said Neena Mishra, director of ETF research at Zacks Investment Research in the USA.
AMP Capital’s Shane Oliver asked whether things are really bad enough to justify selling everything and handing back money to clients, as Phil did.
He makes some important points for you to consider:
- “First, shares globally are at risk of a correction but the combination of improved growth including solid business conditions (see the chart), rising profits, okay valuations and low interest rates indicates the broad backdrop is reasonable.”
- “Second, risks remain around China but they have long been there and there is no indication it’s suddenly about to fall over.”
- “Similarly, I am expecting a pullback in Sydney and Melbourne property prices and the Australian economy remains weak but it’s doubtful that it’s on the edge of the abyss.”
- “Fourthly, over the years there have been numerous high profile calls to “sell everything” or “gear up big time for the great boom ahead”. Some get lucky but many not, the point being that it’s dangerous to bet everything on one big call.”
- “Finally, individual fund managers are usually chosen to fill a role in a portfolio of assets which has been carefully constructed to meet investment goals over time with the expectation that each fund manager will manage the assets in their care in line with their process and views. So, if one manager decides to give the money back, the manager of the whole portfolio – be that a financial planner, super fund or individual – will invariably just have to find another manager to fill the gap.”
Most people think of Shane as AMP’s chief economist, but he’s more than that. This is his title: Head of Investment Strategy and Economics at AMP Capital Investors Limited. This means he’s got a significant watching brief on markets. Of course, he could be wrong, but he’s always testing the curve balls that catch us out, and like me, he’s expecting some sell-off situations for a few months. But, also like me, he’s in a ‘buy the dips’ frame of mind.
I have to say that Phil’s move tees up with some stories that I’ve noted of wealthy people starting to sell assets, such as James Packer getting out of Macao gambling, though he had other reasons for that move. That said, wealthy players often take profits or stem losses to be in cash, just in case a crash comes along, which gives them opportunities when prices fall. However, this is all what I call ‘guessing gambling’ and like all punting, it can bring big windfalls or unpublicised losses — that goes with the patch.
Right now, I can’t see the market taking off as it looks like it’s waiting for President Trump to get his tax bill through, and if it happens this year, stocks will spike.
But as for the here and now, the Spectrem Group’s millionaire investor confidence survey showed its biggest ever slump month over month in May, with 39% saying they will avoid going long stocks in June.
Nervousness about economic growth in the USA has seen bond yields fall recently and while the big ADP private sector jobs survey raised questions about the bond market’s inside knowledge, the actual job numbers gave support to its concerns.
On Thursday, the ADP employment report showed that private payrolls increased by 253,000 in May, well ahead of the 185,000 expected by analysts. Adding to this economic positivity, the Atlanta Federal Reserve said it’s expecting the US economy to grow at 4% annualised pace in the June quarter, which would mean the bond market is wrong! If this is right, then this would push up stocks, but that won’t happen for a few months because statisticians don’t move too fast, except in China! And that’s why their figures are often doubted and questioned.
Against this, and supporting the bond market’s worries, were the official US job stats, which showed 138,000 jobs when 180,000 were tipped.
Making me doubt the financial end is near is the fact that when it comes to emerging markets debt, as CNBC’s Erin Rosenbaum reported: “It was the 18th straight week of inflows to emerging market (EM) debt, according to Bank of America Merrill Lynch data.”
Even Dr. Doom, Marc Faber, has gone public saying he’s going long European and EM corporate debt. Faber has been wrongly making ‘market disaster ahead calls’ but if he wants to go long debt plays in EM companies, his negativity must be contained right now.
Neena Mishra has a pretty sensible take on what’s going on and what needs to happen: “Investors have just been cautious about U.S. stocks … [and] are just waiting for a new catalyst.”
The economic and earnings stories around the world are supporting stocks and geopolitical soapies such as Brexit and the French election are not turning into major dramas, so waiting for a Trump tax card remains the best reason to fight excessive negativity for stocks.
Of course, if he fails to deliver, and say China shocks the world, then Phil will look like a genius, but even though he is a bloke I know and quite like, I hope he looks like a dope in a few months’ time.
As Groucho Marx observed: “No one is completely unhappy at the failure of his best friend.”
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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