Amusing ourselves to death

Quite possibly the worst bounty delivered by the 21st century is the 24-hour news cycle.

It creates a strange sort of loop that distorts time, fact and emotion. You ask yourself, for how many days has this BBC presenter on the TV at Westminster been talking about wicketkeepers? And will it continue after the crucial vote on 27 February if the Prime Minister loses control of Brexit entirely? And then the news flashes to trade talks between the US and China, which everyone believes is close to a breakthrough – any day now. And you’re unsure whether it’s just that you’ve already seen five iterations of the bulletin and it’s not even 11am or if you’ve simply heard an identical argument for many, many months. And then your phone buzzes and you have 13 notifications from news outlets about the same stories only with slightly different summaries …

It’s overwhelming. And it encourages one of two things: either you become a news junkie, reading everything and obsessing, or you only read the first sentence of everything and miss the crucial nuances, the context that makes something relevant or irrelevant, helpful or mischievous. Or you just switch off entirely.

There’s a school of thought doing the rounds that says you should read the news once a day and it should be in print (or digital print) rather than the minute-by-minute stream-of-consciousness updates that are the rage of news editors the world over. Avoid the slap-dash soup of the day served up by reporters throwing facts and opinion round wildly in the race to be first in the great media race to the bottom. Instead, wait for the final, ordered article – vetted by editors – the next day.

This blizzard of news is especially thick for economic data and finance in general. As an industry, we love information – it’s the basis for good decisions and for evaluating your environment and your performance. But, as obvious as it sounds, it’s vital to ensure that your data is sound, that it is relevant. And more data is not always for the best – bad numbers can distort your model, leading you to the wrong conclusions.

We aren’t advocating tin hats here; we don’t think a shadowy cabal of lizard people rules the world or that the gods of Earth were astronauts visiting from a distant galaxy. Journalists aren’t sneaky hacks braving terrible pay to hoodwink the people with their crooked agenda – they are people, working hard under difficult circumstances to keep the public informed. What we are saying is ensure you get the best out of them. Ask a journalist about which stories they are most proud of and they will struggle to answer at first – there are just so many insignificant and varied things they’ve done, and that’s just this week. But then, they will remember the stories that took more time. The ones that were considered and fact-checked and drafted and redrafted. That is their best work – in their own opinion. And we know inside information is always the best information. That’s why investors get nervous when directors sell their own company’s shares.

There is a theme pervading the Information Age: faster, faster, faster. “Move fast and break things,” as they say out West. But recently we’ve seen how that has started to come unstuck. The utopia of Silicon Valley has been revealed to as a flawed, and in some cases toxic, environment. We believe in a more measured approach. We believe in creating a strong process that is reviewed incrementally, not thrown out for the next big thing. We think you should really understand something before you invest in it, that you should look at themes and trends in the fullness of time.

Don’t get caught up in the panic or euphoria of today because you’ll only have to change your opinion tomorrow, and the day after, and the day after that. Trading costs are much lower than when Rathbones started investing more than 250 years ago, but they’re not that cheap.

Source: FE Analytics, data sterling total return to 15 February


Wahey!

So with our ramblings in mind, contrast today’s optimistic outlook for the American economy with the absolute catatonic despair of six weeks ago.

Back then, many, many news cycles ago, investors were more worried about the future of US stocks than at any time since the global financial crisis. Now, investors seem gripped by a fear of missing out on a 2019 rally in stock markets and have been piling into equities. People are getting quietly excited about the potential for better-than-expected company earnings. About 80% of the S&P 500 index has reported for the fourth quarter, posting a blended growth rate of 13.1%, higher than expected, according to FactSet. Quite a few large, bellwether companies, like Apple and Caterpillar, have disappointed investors. Yet most others seem relatively resilient and coyly silent about the future. Apple is no longer throwing out new devices and products, so it was only a matter of time before its supernormal growth would fade. You only need so many mobile phones – many in the developed world already have two. And, if a greater share of the global economy is digital, perhaps a company that builds giant loaders and diggers is less emblematic of world commerce?

As for monetary policy, which tends to be the great driver of investors’ moods right now, the US Federal Reserve (Fed) has sent up a flurry of smoke signals suggesting it will stop tightening monetary policy. Interest rates are now expected to come to a halt for the foreseeable – perhaps just one this year, maybe none – while the reversal of quantitative easing (QE) could end much sooner than the original timetable. Quantitative tightening, as it’s known, is where the Fed lets bonds and mortgage-backed securities (MBS) it bought following the financial crisis mature without using the cash to buy replacement ones. This unwinding has already come a long way, down from a peak of more than $4 trillion to just less than $3.5 trillion. And macro research analysts Gavekal think the Fed may call time as early as this year (a couple of years before schedule) by adjusting how it operates. Since late 2017, we’ve been less concerned about the effects of reversing QE than some other investors. Our analysis suggested the bank wouldn’t be able to completely reverse all of the purchases it made during QE and that the effects on bond and equity prices would be muted.

If this kind of chat excites you, remember to read through the minutes from the Fed’s January meeting on Wednesday. And then there are increasing signs that the European Central Bank will expand its programme of subsidised loans for lenders to help boost the Continental economy, which has been ebbing recently. Otherwise there’s always Brexit. Interminable Brexit.


Bonds

UK 10-Year yield @ 1.16%
US 10-Year yield @ 2.66%
Germany 10-Year yield @ 0.10%
Italy 10-Year yield @ 2.80%
Spain 10-Year yield @ 1.24%


Economic data and companies reporting for week commencing 18 February


Monday 18 February

UK: Rightmove House Prices

Final results: Anglo American, McColl's Retail Group, Reckitt Benckiser
Interim results: City of London Investment Group
Trading update: Victoria


Tuesday 19 February

UK: CBI Trends Survey, Jobless Claims, Average Weekly Earnings, Unemployment Rate
US: NAHB Housing Market Index
EU: Construction Output, ZEW Survey; GER: ZEW Survey

Final results: Bank of Georgia, HSBC Holdings, InterContintental Hotels Group, Spectris
Interim results: BHP
Trading update: Walker Greenbank


Wednesday 20 February

US: MBA Mortgage Applications, FOMC Minutes
EU: Consumer Confidence; GER: PPI

Final results: Glencore, Hochschild Mining, Intu Properties, Lloyds Banking Group, Temple Bar Investment Trust
Interim results: Pan African Resources
Trading update: Gooch & Housego


Thursday 21 February

UK: Public Finances
US: Manufacturing PMI, Services PMI, Leading Index, Durable Goods Orders, Philadelphia Fed Business Outlook, Existing Home Sales
EU: Manufacturing PMI, Services PMI; FRA: Manufacturing PMI, Services PMI; GER: Manufacturing PMI, Services PMI, CPI

Final results: BAE Systems, Barclays, Georgia Capital, Centrica, Macfarlane Group, Hellenic Telecom Industries, Rathbone Brothers, Relx, RPS Group, Serco Group, TBC Bank Group, Telecom Egypt, Vitec Group

Interim results: Avation, Go-Ahead Group, Hays, Mcbride, Wilmington
Trading update: Arbuthnot Banking Group


Friday 22 February

EU: ECB President Mario Draghi speaks in Bologna, CPI; GER: GDP (Q4), IFO Business Climate

Final results: Kingspan Group, Pearson

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