Hedge Clippings | Friday 21 February, 2020

Hedge Clippings was interested to note (not sure if "miffed" or "pleased" is correct) that he was no longer (assuming he ever was) a member of the informed public according to the Edelman trust barometer released yesterday. Basically, that's because those the survey defines as the "informed public" are tertiary educated, have top quartile income, are 25-64 years old and are relatively high consumers of news. Sadly we fail on nearly all counts, the exception being the high consumer of news (and not the fake news either). Now many of you might have already guessed that we didn't qualify as "informed", but now it has been confirmed.

Apparently the informed public now increasingly share the negative sentiments of the mass public in Australia - or in other words, we presume, the UNinformed public. So be it. Hedge Clippings is always in line with the term "hedge", or at least generally conscious of the potential for the negative to occur, albeit that we would generally like to think of ourselves as positive. Anyway, enough about us!

This week we had the good fortune to host Chris Watling of Longview Economics who presented his overview and Latest Global Macro and Market Outlook. We have quoted Longview previously, and we would consider Chris to be one of the most well informed economists we have come across - and certainly one of the most interesting and entertaining. As testimony to this, last October Longview correctly predicted the outcome of the UK General Election - and not just the overall result, but the number of seats Bojo would win by. At that time the result was anything but certain, but their prediction of a 70-90 seat majority was smack on the money - except sadly we didn't put a cent on the trade.

We digress (again). One of Watling's slides reminded us that it was Warren Buffett who quoted Aesop who in 600 BC said, "A bird in the hand is worth two in the bush".  In other words, don't take excessive risks with your capital. Meanwhile, Watling's many charts went on to prove that while there are widespread concerns about earnings ("in the LONG term, it is all about earnings") in fact since 1930 there's been a strong correlation between the US S&P500 and EPS:

Equally, he showed that over the past 39 years there's been no correlation between Earnings and Returns on a one-year outlook, and that over the VERY long term, earnings mean revert:

While over the very short term (1, 3, 5 years) there's no correlation between Valuation and Returns.
 

Most interesting was his points on listening to those he terms the "Armageddonists" such as Jim Rogers who has repeatedly forecast the end of the boom each year between 2011 and 2017. For instance, in 2011 Rogers predicted a "100% chance of crisis, worse than 2008" and so on through to 2017 when it was "the worst crash in our lifetime". For the record, the S&P500 fell 7.7% in 2011 (at least he got the direction right) and in 2015 it was down 3.3%, but for every other year it rose. We note he stopped, or wasn't quoted, predicting after 2017.

That's the history. For Longview's opinion on the future you can contact them here.