Opinion

The typical reasons that prompt asset managers to acquire new software often include recommendations from regulators following an onsite visit or the realisation that their current resources cannot efficiently handle projected workloads. These decisions are predominantly reactive, seldom proactive, writes Gregory Kennedy in his latest column for Investment Officer Luxembourg.

In a thought-provoking piece from May 2018, I penned a commentary here titled ‘Make America Great Again’, promptly re-titled by the editor to ‘Rabobank: Trump is good for economy and stock market’. Reflecting on it now, I am mostly financially appreciative. To clarify, today’s discourse is not about Amazonian deforestation but Donald Trump once more.

China faces a complex challenge as it aims to further stimulate its economy amidst a relentless property crisis while avoiding the repercussions of a devalued currency. It’s a delicate tightrope walk that could see the nation persistently offloading US bonds and equities.

The Chinese government is poised to inject an additional one trillion yuan into its faltering economy. The persistent property sector woes show no signs of abating and are now seeping into banking, construction, and retail.

Ever since the inception of the European Green Deal, ESG (Environmental, Social, and Governance) has been mired in a tangle of compromises, featuring arbitrary categories underpinned by a fundamentally incoherent, and likely counterproductive, concept.

Interest rates are shooting up and in some cases have reached the highest levels in decades. The share prices of US regional banks are collapsing again. And yet reports of new collapsing banks remain absent. Why?

Deposits!

The chart below provides the answer to that question. Despite continued competition with money market funds, deposits of smaller US banks are steadily increasing. Compared to a year ago, there has been a modest growth of 2 per cent.

US 10-year yields have risen above 5 per cent. As a result, earnings yield - the inverse of the P/E ratio - has fallen below bond yields for the first time this century. With that, equities look vulnerable. The days of TINA are over for good, there is an alternative again and that is bonds.

It was 2020, and there were countless stories of young investors becoming millionaires overnight by investing in cryptocurrencies like Bitcoin. I didn’t want to miss out, so I decided to invest a modest amount of 2500 euros.

Curiosity

The possibility of becoming a millionaire was enticing, but I also saw this as a way to educate myself about a ‘new’ concept called blockchain. This technology was the foundation of cryptocurrencies and was set to transform countless industries.

What for decades proved a disadvantage for the Luxembourg fund industry is now quietly becoming an advantage: Luxembourg investment companies can invoke the double taxation treaty with Belgium.

The chart making waves on social media isn’t getting attention without reason. It suggests that the real turmoil in the US labour market kicks in only after the yield curve has been inverted for over a year. Investors might be celebrating a soft landing prematurely.

In 1973, during Yom Kippur, Israel found itself under siege from countries including Syria, Egypt, Morocco, Iraq, Algeria, Kuwait, and Saudi Arabia. This conflict led to the first oil crisis, causing oil prices to triple in a short span, marking a significant shift in Western economic growth post-World War II.