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Inside the mind of the Master Investor: influential British investor Jim Mellon reveals his latest thoughts on the markets.
As I write, I’m sitting at Brussels Nord railway station waiting for the Eurostar (what a wonderful service – really!) and heading to London. Next, I’m off to the Middle East for a couple of weeks. I need to then go to Hong Kong for a day, to renew my ID card, as they are moving to a biometric system. My luggage will therefore include face masks, models of which were recently used in riots and demonstrations, and now for protective anti-coronavirus purposes.
This coronavirus – seemingly beginning to get worse, not better – is a vivid demonstration of how animal farming is causing harm, not just to the environment, but to humans. With animals in close proximity to people, dosed up with antibiotics and hormones, more and more of these pandemics – (for, despite what the World Health Organisation says, this is what it is) will occur. Check out Agronomics (LON:ANIC) in this regard, diligently run by my colleagues Anthony Chow and Laura Turner.
In the same way that noxious environmental emissions (much of which is generated by animal husbandry) affect everyone everywhere, no matter where they are generated, the denizens of Wuhan are not the only ones to be affected by the deadly virus. Global travel means that viruses get all around the world very quickly, and since this disease is asymptomatic for the first few days, this could be a biggie.
Lots of analysts are talking about how SARS etc were just blips on the investment radar, and to a certain extent that is true. But I do remember the Hong Kong property market, admittedly highly inflated, falling 75% at the time of SARS, which in my book is a pretty big blip. I have a feeling this one is going to be much worse, judging by the now very anxious responses of the Chinese authorities.
Partly as a result, we are now seeing gold going once again for multi-year highs, and I expect it to be firmly over $1,700 an ounce by March, trailed, and possibly surpassed in performance terms by its poorer cousin, silver, in due but rapid course.
This will not be good for equity markets, which are now firmly in the ‘greed’ sector of the ‘greed and fear’ index. Positioning of hedge funds and others into equities is very aggressive, and I have written before about how US markets are increasingly buoyed by dangerous levels of buybacks, unsupported by earnings growth – in fact none, in the case of the Russell 3000 for six years.
Veteran hedge-fund manager, Paul Tudor Jones, has recently written of his concerns about the overstretched valuations of many US stocks, but he says that if the party is in full swing, he doesn’t want to leave the dance, or words to that effect. He’s pretty damn smart, but I prefer to get the night bus now and be cautiously prepared, holding cash (not US dollars) gold, silver and equivalents, and of course, high-quality dividend stocks, particularly in the UK.
I have lived long enough and seen sufficient market cycles to know the signs of the “this time it’s different” brigade, and the trebling of Tesla (NASDAQ:TSLA) shares in the past year is a very good illustration of this. If Tesla is worth more than Volkswagen (FRA:VOW) in a year’s time – and it is, currently and nominally, despite making only 1% of the cars Volkswagen does – then I am prepared to eat six (vegan) bratwursts for breakfast under the Brandenburg Gate in Berlin.
Tesla is a good example of market-concentration risk; momentum investors, which include many institutional behemoths and passive tracking funds, jump on a bandwagon despite all the signals telling them NO! The ‘Nifty Fifty’ of the 1960s was similar, and it didn’t end well.
I read Terry Smith’s Fundsmith letter this week; what an outstanding piece, full of sage advice. My view is that he deserves all of his remarkable success but is in a difficult place; being cautious with a very large fund is quite difficult as you can’t really have huge amounts of cash.
While I am in the Gulf, I will be thinking of my speech at the Master Investor event – and some preliminary views include novel ways of playing the climate-change investment boom, as well as trajectory plotting for longevity and clean-meat sciences. I am very excited about all three, and I am also considering how we might be able to play the financial aspects of the super-long lives that I am increasingly sure are coming. All to be discussed at the show.
Meantime, we are just hours away from the UK’s exit from the EU, and thank heavens most of the hot air, vitriol, spite and churlishness that has characterised both sides of the debate seems to have gone. There are a few ‘remaniacs’ and hard-core, no-deal Brexiters still around, but the battlefield appears to be emptying rapidly. UK assets are really attractive in many cases, and I note foreign purchases have been increasing. The lamentable selection of opposition-leader candidates hopefully indicates that the Tories will stay in power beyond their current term, probably aided by a little gerrymandering as boundaries are redrawn, certainly not in a way that benefits Labour.
David Smith of the Sunday Times, a dedicated Remainer, wrote recently about the positive effect the EU has had on British relative growth. However, I suspect the best is yet to come, and it is a fair assumption that in the next 20 years the UK will emerge (partly due to immigration and partly due to growth) as the largest European economy, overtaking Germany.
I remember as a child when we were the ‘poor cousins’, but that has all changed in the past 30 years. It’s going to get better, and it will be pleasant to watch smiles being wiped off certain smug European faces as we once again emerge as top dogs in Europe.