HindeSight Investment #113 July 2024 - Newsletter - READ HERE
HINDESIGHT INVESTMENT EDUCATION NEWSLETTER
CONTENTS
OVERVIEW
INVESTMENT INSIGHTS
PORTFOLIO UPDATE
HINDESIGHT DIVIDEND UK PORTFOLIO
OVERVIEW
US to station medium-range weapons in Germany from 2026
When I saw the Nato announcement last month that the US was to station long-range nuclear weapons again on German soil, I was with a group of younger friends and I made the comment, it’s Greenham Common all over again. However, I was surprised that very few of them knew what the name of Greenham Common had been or represented.
For anyone over the age of 55, Greenham Common was a household name, everyone knew that it was at RAF Greenham Common where not only saw the deployment of US cruise missiles from 1981, it also saw a 19-year long, woman’s only peace protest camp surrounding the airfields, with global media attention.
The recent decision by Germany and by the UK to have nuclear weapons on European soils again, to counter the ‘threat’ of Russia seems renewed insanity, bringing back all the Cold War worries of nuclear anniliation that as a young man I was crucially aware of.
It does seem clear that if you haven’t lived through it, there will be much ignorance around but even if you have been taught the history, the consequences from certain events are outside of your relevant scope.
Financial event history isn’t any different and I wonder if my feelings relating the markets in the last week or so are going unnoticed by the maybe younger masses. But, it has the hairs on my neck prickling, for sure.
The famous American stock speculator of the early 20th century used to spend much of the quiet periods of the stock market ‘gone fishing’ or holidaying in Europe as the legend goes but when he got wind of imminent change, he would quickly book passage and rush back to his US trading office, because he knew the action was about to start. I fear he would be heading back now, pronto.
Despite the low-growth Covid years, followed by a period of high inflation, the markets, notably the US stock market has benefited from constant speculative fever and the economy has seemingly been able to weather the higher interest rate environment. The rise in short-term interest rates have forced an inverted yield curve, but the worries about this signal preceding a recession have been largely forgotten due to the prolonged nature.
The developments this week, which arguably have been brewing for some time, I believe are hugely significant;
• Bank of Japan’s announcement in raising interest rates
• The US not cutting rates and the UK cutting interest rates and stating that policies have been restrictive
• The oil price heading down, despite much increased tensions in the Middle East • Some US Tech companies remarking that the vast expenditure into A.I. might not be immediately relevant
• Warren Buffett’s sale of 50% of his huge Apple holding, building Berkshire’s cash pile close to $300bn
In March’s letter, I wrote about the overstretched historic weakness of the Japanese Yen, mainly due to the interest rate differentials and excessive ‘carry’ trade, where billions of Yen was borrowed to invest overseas more profitably.
Look at the chart below on the FX-cross of AUD/JPY, which in the last month has give up over 11% and all its last year’s gains, with most of those last week. ‘Canary in the coal mine’?
Of course, there is still a wide interest rate differential between Japanese rates and the ROW, which despite the closing movements this week, will remain for a long time. But, it is the extent and size of the ‘elephant trade’ in the room that has benefitted from a zero interest rate liquidity and weakening currency up until now. Not just levered hedge funds, but the whole of Japan Inc that has taken ‘free’ Yen and invested overseas as well, with Ex-colleague and old friend, Simon White of Bloomberg writing below.
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