If you’ve been following developments in the global economy and financial markets this year, it would be an understatement to say that a lot has happened. With the world in disarray due to the global pandemic, most of us have probably been focused on the here and now, trying to figure out how bad the virus will get, when a vaccine might be available, how much economies will contract, how many people will lose their jobs, and what will happen to our investments. But with all the focus on what will happen today, it’s likely many have missed the European Union’s plan for a hydrogen-fueled tomorrow.
FOUR YEARS AGO – NOVEMBER 8th
It was past midnight in Riga, but the voting results from the US presidential elections were just starting to trickle in. I had to be at the airport at 6am to catch the early flight to Berlin, but this was political drama at its best. Just a couple more exit polls. This was important. I could sleep on the plane.
The odds were in largely in favor of the Democratic Party’s presidential candidate Hilary Clinton defeating the Republican Party’s Donald Trump – most polls gave Clinton a 60%-70% chance of victory. But the election results were starting to tell a different story. It would be close. And Trump had a chance. In fact, he had taken the lead in the projected count of Electoral College votes.
“Someone once told me that you were not wealthy unless you owned your weight in gold” -said the client. I had not heard this argument before. Regardless, the implied sum sounded substantial. I started to calculate in my head just how many dollars’ worth of gold she was telling me she was considering to buy (somewhere around 3 million USD). Would we have to liquidate all of her investment portfolio to accomplish this goal? Was this a worthwhile goal? Was buying gold even a good idea? This was sometime in 2012. Gold had been selling off from its highs as the world continued to recover from the great financial crisis. Would it have another run higher? I thought not. Now how could I tell her politely that I thought that she would be better off staying invested in productive and income generating assets such as stocks and bonds rather than something shiny that was dug out of the ground just so that someone could buy it, and then pay to store it in the ground again? Or rather, how could I tell this to the private banker and hope that nothing was lost in translation?
Seven weeks ago, I wrote a post about the contango in oil markets. To summarize, the world was falling apart and there was nowhere to put all the extra supply of crude oil and refined crude products, causing oil to briefly trade negative and oil tanker rates to skyrocket. As a result, tanker companies presented an extremely attractive investment opportunity.
What We Got Wrong
The length and severity of the oil price contango. The price of oil has rebounded significantly since its collapse into negative territory in April, leading to a flattening of the crude oil forward curve and a reduction in the contango opportunity:
April was a considerably better month than March.
Massive global fiscal and monetary responses fueled a strong market rebound in April despite macroeconomic data that showed the huge economic cost of the COVID-19 shutdowns.
Once again, we were reminded that markets look to the future. However, in March, with markets down 35% from their peak in February, the future looked very bleak indeed. We saw the exact opposite when markets rallied on the day when the worst unemployment numbers in US history were released. Crazy.
In today’s hyper-connected world of news alerts, emails, tweets and Facebook posts, it can be hard to not notice all the problems in the world in 2020. Whether it’s negative political developments at home, worries of international conflict, unprecedented environmental disasters or, more recently, a global epidemic, it’s hard to be optimistic about the state of the world and where it’s heading. But why is pessimism so prevalent?
For one, it’s easy and immediate. The amount of information we’re exposed to on a daily basis is unprecedented and problems are always easier to spot in the moment, which is why the nightly news is full of negative stories on scandals, injustices and disasters. This is further exacerbated by the way that our brains operate. Not only do we tend to focus more on the negative when trying to make sense of the world, we also remember negative events more vividly than positive ones. This might be helpful when you’re trying to survive in the wilderness and avoid being eaten by predators, but overwhelming if you’re among the rest of us living in modern society.
A couple of weeks ago, Amazon released Jeff Bezos’ annual letter to shareholders (you can read it here). Whatever you may think of him personally, the fact of the matter is that he is one of the world’s most influential business leaders and Amazon is among the greatest companies on the planet. When people like Jeff Bezos talk, we tend to listen, and many of the things he lays out in this latest letter reflect our approach to money management and how we make decisions and allocate capital.
A clear view on managing the current situation
Crude oil’s historic run into negative pricing
This week one topic has dominated the financial news cycle- collapsing oil prices that at one point went deeply negative on Monday. As oil futures contracts came due, traders were left desperate to offload contracts rather than take delivery of the physical product, leading to a situation where they were paying to people to take these contracts off their hands. The reason? There is just not enough storage capacity available given the precipitous fall in demand for oil and its derivative products.
March was a terrifying month. Covid-19’s rampant spread put a strain on all of the institutions that shape our modern world – our governments, our healthcare systems, our financial markets, our trust in the most simple interactions with one another, and, yes, even our Netflix bandwidths. Over the past month we have all learned more about the exponential spread of viruses than we could have ever imagined. Perhaps I will one day use this experience as a way of illuminating the power of compound growth in investment portfolios, but today is not that day.
Latvijā tāpat kā daudzviet citur pasaulē ir izveidojies uzskats, ka nekustamais īpašums ir viens no labākajiem ieguldījumiem. “Tautā runā”, ka nekustamajam īpašumam nekrīt vērtība un citi līdzīgi pieņēmumi.
Šajā brīdi vēlos piedāvāt ASV piemēru.
Ja aplūkojam S&P/Case-Shiller U.S. National Home Price Index vērtības izmaiņas laikā no 1987.gada līdz šī gada jūlijam, redzam, ka indeksa vērtība ir pieaugusi no 100 līdz 332.1.
32 gadu laikā mājokļu cenas ir pieaugušas par 232.1% jeb par 3.8% gadā. 3.8% vērtības pieaugums gadā nav slikti. Taču ir viens liels BET. Indekss atspoguļo cenas izmaiņas, taču netiek ņemta vērā inflācija.