Investment letters

Pension funds

11/2019

Pension Tensions

by Pascal Blackburne & Luc Synaeghel

The US Federal Reserve just cut rates for the third time in as many months. Meanwhile, M. Draghi’s last moves at the helm of the European Central Bank were to restart quantitative easing and push the cost of money deeper into negative territory. The opportunity to revert to a normal monetary environment has been missed – a blessing in the short run, perhaps, but a longer-term curse.

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Hong Kong Umbrella Movement

10/2019

Brexit D-Day is Approaching

by Pascal Blackburne & Luc Synaeghel

October is upon us and still there is no clarity on Brexit. Various scenarios are possible, with the worst standing to seriously hurt the European economy – at a time when German woes are deepening, fiscal stimulus is but a hope, and no progress is visible on the US-China trade front.

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Hong Kong Umbrella Movement

09/2019

The Genie is Out of the Bottle

by Pascal Blackburne & Luc Synaeghel

Right now, from China’s perspective, intensifying Hong Kong protests arguably pose a greater problem than the trade dispute with the US. A repeat of the Tiananmen events, three decades ago, is to be avoided at all cost – for the sake not just of the Chinese, but also the global economy.

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Sell in may and go away

08/2019

President Trump and Negative Yields: Watch out

by Pascal Blackburne & Luc Synaeghel

How the picture can change in just a month. After “promising” at the late June G20 summit to allow trade talks to resume and not impose any new tariffs on goods imported from China, President Trump abruptly reversed course – one day after the Federal Reserve announced its first rate cut in over a decade.

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Sell in may and go away

07/2019

A Welcome Truce

by Pascal Blackburne & Luc Synaeghel

Tension ahead of late June G20 summit in Osaka was high. Would this gathering of world leaders put the final nail in the coffin of multilateralism or instead succeed in rekindling discussions towards a US-China trade agreement – not to mention global cooperation on the climate front?

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Sell in may and go away

06/2019

Not Out of the Woods

by Pascal Blackburne & Luc Synaeghel

The European elections have come and gone, without the feared populist victory but yielding a fragmented landscape – which promises intricate negotiations to form a majority in parliament and elect the EU Commission President. Meanwhile, financial markets have also been rattled by a new set of Trump missiles, targeting China and Mexico. Making investment decisions in such an unpredictable and geopolitically-driven context really is a delicate and difficult task.

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Sell in may and go away

05/2019

"Sell in May and Go Away" ?

by Pascal Blackburne & Luc Synaeghel

With little risk that central banks deviate from their accommodative stance – save perhaps a scenario of victory of the left in the European elections and subsequent German takeover of ECB leadership – risky assets look set to pursue their upward path, at least through the end of this year and of course conditional on a good outcome to the difficult, but still ongoing, trade talks between the US and China.

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Green Light from the Fed

04/2019

Green light from the FED

by Pascal Blackburne & Luc Synaeghel

The one central bank that had embarked on the monetary policy normalisation route has just stopped dead in its tracks. The US Federal Reserve’s March 20 decision not to hike interest rates at this point – nor indeed probably for the remainder of 2019 – and to go easy on balance sheet reduction provides a clear signal to financial markets: low yields are here to stay, so the risky asset rally is welcome to continue.

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DOESVALUATIONMATTER

03/2019

Does Valuation Matter?

by Pascal Blackburne & Luc Synaeghel

Helping financial markets extend their rally late February was an unexpectedly solid 4th quarter 2018 US GDP report. With the Fed now on pause, a trade deal with China seemingly at hand and Trump-promised infrastructure investments to possibly finally materialise, the largest world economy looks set to continue growing this year, breaking its post-war cycle length record.

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TradeWar2.0

02/2019

Trade War 2.0

by Pascal Blackburne & Luc Synaeghel

A look at the recent performance of shipping stocks – or the Baltic Dry index (BDI) for that matter – would suggest that the end of the world is nigh. After all, transportation is typically considered a leading economic indicator, with shipping its most volatile segment. Should we really be readying for a disaster scenario?

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g20

01/2019

New Horizons

by Pascal Blackburne & Luc Synaeghel

The first day of 2019 saw the NASA spacecraft “New Horizons”, launched in January 2006, reach the Ultima Thule comet in the Kuiper Belt, at the outer limit of our solar system. “New Horizons” took some 900 amazing pictures per second during its flyby, before continuing its voyage at a dazzling speed into the unknown territory of the wider galaxy.

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g20

12/2018

Cause and Consequence

by Pascal Blackburne & Luc Synaeghel

Photograph: Alexander Nemenov/AFP/Getty Images

Have financial markets been correcting because of underlying weakness in the real economy? Or could it be that market turmoil will be what bring this long-lasting economic upcycle to its knees? As we turn the last page of 2018, the eternal “chicken or egg” question is very much open.

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11/2018

Lessons from the October Rout

by Pascal Blackburne & Luc Synaeghel

October certainly lived up to its adverse reputation, with the S&P 500 index posting its worst monthly decline since 2008, equities losing ground across the globe and bond yields nearing multi-year highs. Still, rather than marking the start of a deeper and broader downturn – one that extends even beyond financial markets – we view the recent corrective episode as a drill for what awaits investors, once the tipping point is eventually reached.

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10/2018

Nearing the Tipping Point

by Pascal Blackburne & Luc Synaeghel

What if the main victim of US-promoted trade barriers were its own domestic economy? The European Central Bank recently made such a suggestion, which is also starting to be buttressed by economic data – be it in terms of the US trade deficit or inflation.

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09/2018

Should We Ride the New Economy Wave

by Pascal Blackburne & Luc Synaeghel

The current outperformance of US equity indices goes beyond an investor craze for Facebook, Apple, Amazon, Netflix and Google (collectively known as the FAANG stocks). It reflects a new versus old economy battle, which is starting to have serious real-world implications. And this battle is being fought on uneven terms, with still cheap and plentiful money providing an undue advantage to new economy companies.

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08/2018

US Recession Concerns are Premature

by Pascal Blackburne & Luc Synaeghel

The market is wrong in thinking that the US have nothing to lose in a trade war with China – just as it is wrong in expecting the world’s largest economy to weaken already next year.

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07/2018

It Is Not Only About Tarrifs

by Pascal Blackburne & Luc Synaeghel

Trade disputes are monopolising investor and media attention, with tough talk unlikely to abate before the US mid-term elections. But what if the more serious issues for financial markets were actually mounting inflationary pressures in the US and failing political unity in Europe?

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MiniBot

06/2018

Uscitalia

by Pascal Blackburne & Luc Synaeghel

Image Credit : Carlo Botta

European political waters were supposed to be calmer this year, after the many electoral hurdles of 2017. But investors’ nerves were tested again in late May with the ousting of the Spanish Prime Minister (leaving his successor at the helm of a very fragmented parliament) and complicated negotiations with respect to the formation of a populist government in Italy.

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InterestRate

05/2018

An important milestone was reached on April 24, when the US Treasury 10-year yield topped 3%, threatening to undermine the form of “equilibrium” that equity markets had settled into during the past few months.

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InterestRate

04/2018

Anticipating the unpredictable

by Pascal Blackburne & Luc Synaeghel

Ten years have gone by since the Great Financial Crisis. The sequence of events that unfolded during this decade has profoundly transformed the world – not only for investors but for society at large. Democracy and free trade are under attack, technocrats have become very powerful, international institutions are unable to fulfil their historical role, and « peace for our time » is no longer assured.

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InterestRate

03/2018

A Step-up In Volatility

by Pascal Blackburne & Luc Synaeghel

What if the early February episode of market stress was not just a “healthy correction” within equities’ relentless upward march, but rather the onset of a more troubled environment?

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InterestRate

02/2018

The inflation comeback

by Pascal Blackburne & Luc Synaeghel

The February 2 US labour market report sounded a warning bell, jolting equity markets out of their long-time state of sweet euphoria and blindness to budding inflationary pressures.

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Bitcoin

01/2018

A buoyant start to the new year

by Pascal Blackburne & Luc Synaeghel

As we step into 2018, there is little question as to the direction of the global economy – barring an unexpected external shock. For the first time since the Great Financial Crisis, the OECD in aggregate is operating above potential, thanks to years of easy monetary conditions and the ending of fiscal austerity. Momentum appears to be particularly strong in corporate investment spending, with the compromise on tax cuts signed last month by the US Senate and House of Representatives only to add fuel.

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Bitcoin

12/2017

The Bitcoin : an accident waiting to happen

by Pascal Blackburne & Luc Synaeghel

As 2017 wraps up, investors’ quest for return is becoming ever more desperate. The money flooding to private equity and venture capital funds is mind-boggling, as are the valuations at which some managers in these spaces are making transactions. Paying up to a hundred times sales for a recently-founded unprofitable company cannot in our view be called investing – rather it is a gamble. «But hey», even sophisticated investors are saying, forgetting prior discipline about double-digit portfolio internal return rates, «perhaps this one company will be the next Google?»

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volatility

11/2017

Low volatility does not mean low risk

by Pascal Blackburne & Luc Synaeghel

Complacency rules in this “Goldilocks” environment of improving global activity with no flare-up (so far) of inflationary pressures. The investor mantra is that markets are expensive but no severe correction is to be expected in the near future, thanks to never-failing central bank support.

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SlowStrangle

10/2017

Shifting geopolitics

by Pascal Blackburne & Luc Synaeghel

We begin this letter on what might seem an incongruous note for a financial publication: the end of the ban on women driving in Saudi Arabia. We are even tempted to paraphrase Neil Armstrong, considering it “one small step for Saudi women, one giant leap for Saudi Arabia”. Yes, we view this development as momentous, in so far as it underlines the speed at which the Kingdom of Saudi Arabia (KSA) is evolving under the influence of the young Crown Prince. A more acceptable form of society to “developed world” eyes will allow the KSA greater support from Western countries. Ties with US have already grown noticeably stronger during the past year.

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SlowStrangle

09/2017

Boiling the frog

by Pascal Blackburne & Luc Synaeghel

The month of August was certainly noisy, with Hurricane Harvey and escalating North Korean military provocations dominating the headlines. Such commotion should, however, not detract investors from what we consider to be the crucial longer-term development: the normalisation of monetary policy – assuming of course that a dire scenario will be avoided in North Korea.

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SlowStrangle

08/2017

Euro breakout

by Pascal Blackburne & Luc Synaeghel

Numerous are the concerns that we have written about in recent letters – all the while striving to make the most of the ongoing sweet spot for the global economy and financial markets. Rich equity valuations, eventual wage-driven inflationary pressures, high correlations due to ETF and quantitative hedge fund proliferation, (geo)political uncertainties, build-up of Chinese non-performing debt: these matters (and more) have long featured on our worry list.

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SlowStrangle

07/2017

Slow strangle

by Pascal Blackburne & Luc Synaeghel

However enjoyable the ongoing upward ride in risky asset markets, we confess to becoming increasingly worried about the longer-term outlook. By this we do not mean that we fear a market crash. That, to put it bluntly, would be the better scenario – rapidly aligning valuations with intrinsic company worth and opening a new investment window. No, what we dread is a slow grinding process, whereby risky assets produce poor returns for many years. Alongside slowly rising bond yields, aka negative bond returns, this would be nightmarish for investors.

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Economics_Vs_Politics

06/2017

1999 all over again?

by Pascal Blackburne & Luc Synaeghel

The money currently flowing into the private equity space is quite astounding – and a testimony to how desperate investors have become for returns in a world of zero rates. Not only are they willing to entrust massive amounts to newly established private equity funds, but they are also requesting that their money be put to work fast. The ensuing competition between private equity firms to find investments means not only that target company prices are bid up well above the level suggested by standard valuation tools, but also that proper due diligence is not always performed.

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Economics_Vs_Politics

05/2017

Economics vs. Politics

by Pascal Blackburne & Luc Synaeghel

At the risk of repeating ourselves, let us begin this letter by pointing out the striking dichotomy between solid – indeed improving – European economic fundamentals and a political agenda that is rife with potential pitfalls.

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Climbing a wall of worry ?

04/2017

No storm on the horizon... Anchors aweigh!

by Pascal Blackburne & Luc Synaeghel

Economic indicators are virtually unanimous in pointing to (very) strong global growth in the second quarter. Confidence is high at both the consumer and business levels, with Purchasing Managers Indices particularly buoyant – typically reliable leading indicators.

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Climbing a wall of worry ?

03/2017

Climbing a wall of worry

by Pascal Blackburne & Luc Synaeghel

Politics rule our investment letter again this month, albeit shifting focus from the US to Europe. With the first episode of a heavy 2017 electoral agenda just around the corner, investors are understandably concerned that a populist backlash could undermine the European construction. Our position, taking a hard look at each of the countries involved, is that the European Union (EU) will likely not only survive the political challenges of 2017, but perhaps even emerge more united – thus in a better position to rethink its future.

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When will trump hit the wall ?

02/2017

When will Trump hit the wall?

by Pascal Blackburne & Luc Synaeghel

The first weeks of the Trump term have been animated, to say the least.
Far from “rising to the function” as many were hoping, the new US President has kept to his Twitter style and set about running the country as if it were a company. We are convinced that institutions will eventually constrain him, be they the Congress (manifestly in no hurry to confirm the nomination of several Trump candidates), courts of law (as is occurring on the issue of immigration), the Federal Reserve or state governors. Pressure from the US corporate sector is also already evident. In domestic affairs, Donald Trump will thus have to start to compromise.

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01/2017

There is no comfort in the truth

by Pascal Blackburne & Luc Synaeghel

The economic picture is looking good as we enter 2017 – and stands to get even better in 2018. Growth is accelerating globally thanks to less austere fiscal policies and large infrastructure investments. After decades of trial and error, central banks have found the holy recipe to avoid recessions and keep inflation at a moderate level: durably low interest rates and episodic money printing.

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12/2016

Stubbornly optimistic equity markets

by Luc Synaeghel, CIO

Having begun 2016 in an extremely pessimistic mood, equity markets are ending the year on a high note. Brexit vote, Trump election, OPEC agreement to cut production (pushing the oil price upward), political disruption in Italy: no event has been “bad” enough to derail the upward march of most equity indexes for more than a few hours or days.

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11/2016

President Trump

by Luc Synaeghel, CIO
Let us begin by apologising to our readers for the late publication of this Investment Letter.
Somewhat distrustful of polls (a lesson from the Brexit referendum), we chose not to put our monthly thoughts to paper until the result of the US vote was known. In hindsight of course, this proved a wise option. The election of Donald Trump as the next President is a true game changer for both the US economy and financial markets.
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10/2016

Do not underestimate China

by Luc Synaeghel, CIO
It has been only six months since Chinese policymakers announced their plan to develop the North Western part of their country and already more than 300 projects, totalling some USD 150 billion, are ready for roll-out. There should be no doubt that China is serious about its infrastructure spending, with major consequences for commodity prices and the industrial sector at large. Yet financial markets have been paying little attention.
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09/2016

Dont' be fooled by Jackson Hole

by Luc Synaeghel, CIO
Jackson Hole, a remote mountain valley of West Wyoming, used to be roamed by fur trappers in the 19th century. Over the past decades, it has come to be known as the annual central banking late summer retreat. Every August, central bankers, policy experts and academics gather there to discuss « a topic that is not necessarily of immediate concern, but instead looks into the future at emerging issues and trends »1.
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08/2016

The biggest bond bubble ever

by Luc Synaeghel, CIO
There are no two ways about it: since the great financial crisis of 2008 developed economies have produced consistently disappointing growth despite unprecedented monetary stimulus, falling unemployment and – since mid-2014 – the low oil price bonanza. Recent months have been no exception. Just released US figures put second quarter real GDP annual growth at a meagre 1.2%, (following downward-revised 0.8% growth in the first quarter) while the European Union (EU) posted only marginally better real growth.
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07/2016

The dearth of yield

by Luc Synaeghel, CIO
Much has already been said and written about UK voters’ June 23 “surprising” decision to leave the European Union (EU) – surprising in the eyes of financial markets and politicians that is. More than the outcome of the vote, what we really find astounding is the lack of a plan B, on both sides of the Channel. We are also surprised to see EU leaders play hardball with post-referendum UK.
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06/2016

A historical perspective

by Luc Synaeghel, CIO

Last month we wrote about a number of black swan events that could generate financial market volatility over the coming weeks and months. Many of the short-term risks that we are monitoring actually share common roots – roots that reach back several decades. Reflecting on how the world has arrived to the current maelstrom of voter unrest, debt-strapped governments, distressed banks and increasingly impotent central bankers is key in our view to understanding the drivers of future investment returns.

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05/2016

The current investment waters are eerily calm. Early year concerns about a Chinese hard landing, the oil price collapse or a recession in the US have given way to quiet optimism that the world economy will continue to plod along its slow growth path, with the full backing of monetary authorities. Beyond the fact that such a scenario cannot be expected to generate substantial returns, given the generally rich valuation levels that now prevail across the financial market spectrum, we would caution that investors have been lulled into a false sense of safety. Many a black swan inhabit these calm waters. Put differently, much could go wrong in the next weeks or months, triggering a serious financial market correction.
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04/2016

During her recent speech at the Economic Club of New York, Federal Reserve (Fed) Chair Janet Yellen made a number of rather remarkable points – boiling down to a greater tolerance for inflation in deciding on the near-­‐term path for interest rates. She explicitly referred to economic activity in other regions of the world as a determinant of US monetary policy, effectively declaring the Fed the central bank of the world. Straying away from the usual central bank focus on domestic conditions, she also pointed to the potential impact of a rate hike on the currency, saying aloud what we have suspected for some time: the Fed is intent on avoiding a stronger greenback. Finally, she stressed the world’s need for stable (higher) commodity and oil prices, which of course go hand in hand with a more stable US dollar.
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03/2016

A welcome shift in sentiment

by Luc Synaeghel, CIO
Oil continues to be at the centre of our thought process, not just as regards asset allocation but also in terms of the global economic outlook. Its impressive price rebound since mid-February has made for much better oriented financial markets overall, with our (considerable) oil-related positions obviously receiving a particular boost. But the uptrend in the oil price, to the extent that it continues, also stands to alter the inflation picture, with direct implications for forthcoming central bank action.
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02/2016

What to expect of 2016

by Luc Synaeghel, CIO
After an already trying month of January, financial market angst has only deepened going into February. In order to better explain the investment decisions that we have been – and are right now – taking, and why we have taken them, we feel it important in this issue to detail our 2016 outlook for the major economies, together with its implications for asset allocation.
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01/2016

A rough start to the new year

by Luc Synaeghel, CIO
The first days of the year have certainly been trying for investors, with China again widely designated as the culprit for financial market turbulences. Admittedly, as was the case in the summer of 2015, Chinese policymakers’ efforts to stem their equity market – and to a lesser extent currency – decline have appeared awkward.
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