I would say that it is a strange world when the political situation is so turbulent in so many places, there are threats of war, interest rates are running at record lows and stock markets on both sides of the Atlantic are close to all-time highs.
It would have been difficult to imagine two years ago that we would now have the real threat of a socialist government in this country should Mrs May slip up, and we have voted to leave the European Union. The threat we are seeing from North Korea and Mr Trump’s answers to it, and the real possibility of limited growth on both sides of the Atlantic, we would have believed it unlikely to have expected that stock market indices would be where they are today.
One fundamental factor behind it is the low level of interest rates. This is a function of Western governments’ and consumers’ heavy indebtedness. The level of UK debt is at a record high and the government is paying interest of roughly 1.65%, being the yield on 10 year gilts. Should we have a change in government and Mr Corbyn was in power, one has to ask one’s self what rate of interest might we get from Mr Corbyn, as John Royden discusses in his bond focus.
We live in a world today where I think technology is developing at a very fast pace in many different directions, whether it be in terms of electric cars, health care or appliances. We can only guess at the effect of these changes and even those at the top of technology companies could only guess as well. As the Chairman of IBM, Thomas Watson said in 1943 “I think there is a world market for maybe five computers”. He had no better idea than we do today.
Electrification of cars will have a massive effect on all of us and where we choose to invest, particularly with regards to the energy sector. Fundamentally the electricity that goes into the grid which will have to power our cars will have to come from somewhere and those power stations will be fuelled by the cheapest and most efficient alternatives, whether it be gas, oil, nuclear or coal. I think the future is difficult to read but all we can say is that we are bound to see change and there will be winners and losers in the stock market.
At JM Finn our job is to invest on behalf of our clients, looking after their needs and trying to have some views about the future, but also fundamentally protecting capital at the same time. The performance of portfolios is extremely important to us but so is the service and advice we offer and the longevity of our friendships and relationships with our clients. We very much recognise that financial planning generally is becoming a very important factor of what we do and what our clients seek and hence we have built up our financial planning business. It is for this reason that you will note we have changed our logo – to recognise that we are no longer purely an investment firm, but we offer broader wealth management services; more detail on this can be found on page 24.
The Autumn has often been a tricky time for markets. Whether it proves to be this year or not, it is the job of all of us to lead our clients through any short term volatility.