The VP Blog

A blog about financial markets and the VP investing framework

Cyclical upside intact in the UK, structural challenges remain

We have seen strong coincident activity in the UK in recent months, helped in part by a government-engineered boost to the housing market, which has lifted consumer spirits and caused retail sales to surge. Our leading indicator anticipated this upturn in the economy, and it continues to see no blots on the horizon (ie over the next 6 to 9 months), although this month it has leveled off slightly rather than continuing to climb.

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Market is likely getting ahead of itself on European equities

The composite eurozone January flash PMI showed accelerating expansion led by Germany, but the PMI readings are still only showing moderate growth, considerably below the momentum achieved, for example, in the 2009/2010 green-shoots revival. What growth we do see will be low in comparison with earlier times and if real money growth continues to lose momentum, we might even see renewed weakness.

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Don’t tar EMs with the same brush

The debate on EM economies (and equities) is heating up. Initially this week, we had the financial world equivalent of the pillory with the widely reported closing of a high profile US hedge fund’s EM fund due to heavy losses in 2013. Solemn nodding followed by EM naysayers suggesting that this is truly a sign of the death-knell of EM as an asset class. The stakes are being raised elsewhere too with the media pitting seasoned investment professionals on both sides of the fence in recent weeks.

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AUD was due a tactical re-bound; watch the AUDNZD

The AUD has been under strong pressure in the past 12-18 months. A slowing Chinese economy, an unwinding housing and mining boom and a dovish RBA have all been contributing factors. Many of these reasons are still valid reasons to be fundamentally negative on Australia, but as we have pointed out since the beginning of the year the AUD was due a tactical rebound.

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Thinking about retirement in the US

Gone are the days when financial advisory could boast the same professional stability as a well seated doctor or lawyer. Herding people through the door and offering them a standard 60/40 portfolio invested in the in-house equity and bond funds was a simple and lucrative business model but it does not work anymore. Competition and technical innovation have already changed the industry of professional personal investment advisory and it will be sure to effect radical change for years to come.

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