Q4 2019 Report by Adam & Company’s Investment Management Team.
The TV show sweeping up prizes in the current awards season is the HBO/Sky mini-series Chernobyl, which on the face of it is about the run up to the disaster and the battle to contain the political and literal fall-out (as with the film ‘Titanic’, I don’t think a ‘spoiler alert’ about the plot is necessary).
As with all great works, it is not simply telling a story or painting a picture. It goes much deeper, and deliberately works on many levels. For example, when asked why he thought it was proving so popular, the writer said that ‘we live in a time when there is a global war on the truth’ and explicitly linked it to the 45th President of the USA, Donald John Trump.
The depiction of the Soviet Union in the show is of a catastrophically inefficient system built on corruption and lies. The script seems to be saying that under such a system, a disaster was inevitable – indeed, the end of the Soviet system itself was inevitable. Does such a fate await Trump in coming months, or at November’s election?
He was of course impeached by the House which meant that he faced a trial for ‘high crimes & misdemeanours’ in the Senate – ironically, given where Chernobyl is, for actions in the Ukraine. The chances of him being ejected from office by this process were always slim, given the high number of Republicans who would need to vote against him. And, indeed, he has now been acquitted of all charges.
Following his trade war with China and the lowest level of unemployment in 50 years, he is also enjoying reasonable poll ratings, certainly better than any Democratic candidates currently though things can of course change. The stock market would certainly be worried if he repeats the ‘America First’ mantra of the previous campaign, and sparks more damaging tariffs wars with China and Europe which hurt global trade.
“When people believe in a system strongly enough they tend to ignore facts to the contrary.”
However the stock market is also extremely worried that one of the more left-wing candidates will beat him in November and reverse his tax cuts. Indeed the popularity of Elizabeth Warren seems inversely correlated to the US market, and when her ratings slipped in the final quarter the stock market surged higher.
There’s a specific scene in Chernobyl which summarises the stupidity of the system to viewers. Not wanting to admit things are as bad as they are, and certainly not wanting American help, a West German company is called on for a robot to clear the radioactive fuel rods. The bright yellow robot called ‘Joker’ fails instantly. The junior staff seem mildly amused - German engineering is not as good as we thought. The viewers of course know that it was always going to fail because the Soviets would not admit how high the radiation was.
When people believe in a system strongly enough they tend to ignore facts to the contrary. One part of the markets where such a situation may exist is in government bonds. Part of our current presentation to clients shows that around 30pct of all global government bonds yield less than 1% and around 25% yield less than zero. Buy these latter ones and hold to maturity and you guarantee yourself a loss. But the system dictates that pension funds are forced to buy them as they are seen as low risk; banks are forced to buy them due to rules around holding capital to protect against losses on loans; and insurance companies are forced to buy them for protection against future claims.
Whilst there are undoubtedly political risks to equities and bonds this year, we far prefer the former due to the long term potential for compounding rising profits and dividends. The latter are surely not a way to accumulate wealth, but rather to protect against ‘fall-out’.
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We offer discretionary investment management to individuals and their families, and to charities. We take a long term approach to investing and we believe this gives us an advantage in a world where markets and media are increasingly focused on short term news.
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