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Hedge Clippings | Friday, 22 January 2021
Bubble, Bubble, Toil and Trouble...
So the Donald has finally gone - or at least has left the White House - and thus a new era begins. History will judge both the man and his presidency, but he was, if nothing else, a paradox: Immensely divisive, yet at the same time he managed to unite those who believed him and his rhetoric as few others have been able to do.
Arnold Schwarzenegger compared his antics to those of Nazi Germany's Kristallnacht (or Night of Broken Glass) and maybe that provides an indication of his similarity with another with the same ability to unite, and divide, so comprehensively.
And so on to Joe Biden's term - the 46th President of the United States of America - however long that lasts at a time when "united" is hardly an apt description. In many ways his legacy will not only be how he manages to handle the medical crisis the USA faces, or the trillions poured into revitalising the COVID ravaged economy, but in how he manages to put the United back in to the States.
Sadly there are some Trump supporters who will never be a party to the unification, irrespective of how well Biden manages the health of the nation, or the economy.
Looking Forward, Looking Back
At this time of the year it is customary for Hedge Clippings to look back over the year just past, and forward to the next 12 months. Actually 11 months, as that's almost all that's left of 2021.
Looking back, it was a year that most will want to, but are unlikely to forget. At the same time as creating unforeseen challenges, there were undoubted winners, with actively managed funds being amongst them. While the ASX200 Accumulation Index did well to recover from the collapse of the market in February and March to close out the year just in the black, 1.40%, the average equity based fund in AFM's index returned just over 10% after all fees.
Full details are available here. We could spend significant time and space listing others who we would categorise as being on the positive side of the ledger, but Australia as a whole, thanks to some geographic good luck and swift action at nearly all levels of government, with the occasional hiccup, certainly did better than most in handling COVID.
Looking back is easy, so what about the future? There are warnings of an asset bubble, thanks to interest rates that are effectively zero, and the massive stimulation provided by governments the world over. Seeing as neither of these are going to change for the next 12-36 months at least, bursting the bubble is unlikely in the immediate future.
However, eventually inflation must rear its ugly head again, and as the era of easy money comes to an end that's when things will become interesting. Bubbles can't continue forever, and as we saw with the South Sea Bubble, 1929, 1987, the tech bubble of 1999, or the GFC, they normally end in tears.
The issue is the timing. Exit too early, and one is likely to miss out. Too late, and watch out. Diversification and keeping correlation between assets (including between funds) low should enable the middle "Goldilocks" course of not too much exposure to risk, and not too little to be navigated.
News & Insights
Video interview with Rob Hay from Collins St Asset Management
ESG Insights: Banks are putting the squeeze on fossil fuels by Nikko Asset Management
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