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Hedge Clippings | Friday, 14 October 2022 We need to take the medicine, and hopefully it won't kill us. You don't need Hedge Clippings to dampen your mood on a Friday afternoon (at the end of another volatile and soggy week) by telling you the world is in a precarious position. Sadly, it's a fact: We need to take the medicine, like it or not. Unfortunately, it's not a pleasant medicine, or even a single dose, as the problems we're facing are multiple, and, by and large, of our own making. Of course, by "our" we're mainly meaning politicians and central banks, but not entirely. Collectively, the broader population selects politicians, particularly in democracies, and those politicians, and the bureaucrats and central bankers, take us in a chosen direction. We're probably veering off track there, but the reality is that for the past decade or so investors, homeowners and businesses have been happy to accept the easy monetary conditions, ever lower interest rates, and lower (or negative) inflation, which in turn saw asset prices - particularly equities and property - soar to unrealistic levels. As long as the majority were beneficiaries, it was a case of "happy days" or possibly more correctly, "happy daze". Deep down, if we stopped to think about it long enough, or hard enough, we knew there'd be a day of reckoning. Some older and wiser heads - think Warren Buffet and his offsider Charlie Munger - have long warned about this reckoning, but "hey, they're almost 100, so what would they know?" With thanks to L1 Capital's latest quarterly report, listen or watch The Richter Scales' 2007 parody "Here Comes Another Bubble". History repeating itself! It is no secret that the main disease is inflation, and the medicine is higher interest rates. Overnight US inflationary figures were worse than expected, presumably leading to a further 0.75% rate rise at the next Fed meeting. Hey presto, US markets turned around and ended over 2% higher on the day, and the ASX following suit. Go figure? However, with the S&P500 down over 25% YTD (although less than half of that for the ASX200's YTD total return) there are inevitably investors itching to catch the bottom of the market, particularly for oversold quality stocks, while others wonder if it is too late to sell. Inflation may be the current issue, and higher rates are the medicine, but that will/may (delete which ever option you think least likely) lead to a looming recession, and not just in the US and Europe. The IMF has downgraded global growth from 6% in 2021 to 3.2% in 2022, and further to 2.7% in 2023, and central bankers are adamant they'll do whatever it takes to tame inflation. Back to Charlie Munger, who claims central banks have for years been ignoring the problem by persevering with easy money for far too long, rather than confronting the problem. As anyone would tell you, ignoring a problem doesn't make it go away. Worse still, the problem normally worsens, or to come back to our medical analogy, the stronger and more unpleasant the medicine is required to cure the disease. Of course we're referring to financial markets and the world economy, but exactly the same principle applies in politics: Take Vladimir Putin, who encouraged by his friendship with Donald Trump, and by Europe's dependence on Russian oil and gas, was allowed to get away with murder (literally) until the world is faced with a dilemma: Will he, or won't he do the unthinkable? Rewarding bad behaviour doesn't work. New Funds on FundMonitors.com The energy crisis is likely to last years | Magellan Asset Management Which companies are posting strong and growing results? | Insync Fund Managers |
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September 2022 Performance News Bennelong Emerging Companies Fund Bennelong Long Short Equity Fund L1 Capital Long Short Fund (Monthly Class) |
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