VOICES OF REASON
How does this sound as an investment proposition? You give me money now and in five years' time I will give you only 95% of it back. Interested? Sound like a good deal? I didn't think so, but that is exactly what is happening if you invest in a number of different countries' government bonds, and even some corporate bonds, just now. Even more amazingly these bond issues are being oversubscribed!
Proof that there are worse places than the UK, if you live in Switzerland, any Swiss Francs you have on deposit in the bank has interest deducted rather than added. Yes, that is right, you are paying the bank to hold your money. As well as this we have the situation in Greece reaching a tipping point and the likelihood is this will result in them defaulting on their bond payments and possibly exit the EU.
Given this monetary madness it was perfect timing and a privilege for us to have meetings yesterday with Neil Woodford and Sebastian Lyon. Neil has proven himself to be one of the UK's leading equity managers over the last twenty years, and Sebastian manages the Troy Asset Management Trojan Fund where capital preservation and achieving a greater return than cash is the main priority.
So what do these two great minds think?
The Election - Both feel that the result of the Election will have most impact on the value of Sterling against other currencies in the first instance with the probability of the pound weakening if we see a Labour/SNP Government and possibly strengthening if there is a Conservative led administration. These currency moves could be significant. In terms of the stockmarket, although there is likely to be a knee jerk reaction once the result is known, in the weeks afterwards markets are likely to settle down and the effect be short lived.
Biggest Concern - Both feel that the bubble that exists in bond markets is the biggest worry for investors. Neil feels that this can only probably end in some form of default which may be many years from happening but is inevitable. Sebastian agrees and has only index-linked bonds in his fund and has done for some time.
Stockmarkets - Although neither could be described as wildly bullish they do feel there is still value to be had in a number of sectors and companies although both feel that stock picking will be more important than ever. Companies that generate cash and pay sustainable dividends are more expensive than they were but are still good value compared to alternative asset classes and there are still a number of companies with strong growth prospects if you look hard enough.
The Future - Although there are plenty potential headwinds Neil feels that we should never underestimate the ability of the human race to counter adversity. He feels strongly that we are on the brink of a technological revolution which will transform our lives and economies. Businesses that do not yet exist will soon be providing services that will greatly improve our wellbeing both physically and economically. Doubters need only look at Google, which two Stanford graduates started in their garage seventeen years ago, and now employs over 55,000 people.
It was refreshing to listen to two people who understand the mechanics of the global financial system and talk common sense which is a rarity as anyone who has listened to the news in the last couple of weeks or watched any of the myriad of "Election debates" will attest.
Unfortunately, neither Neil nor Sebastian is keen to have a career in politics so it looks like we are stuck with the current lot, all of whom could give the Brothers Grimm a run for their money when it comes to spouting fairy tales. Mind you, given there are investors happy to buy bonds where they are guaranteed to lose money there may actually be some voters who believe them!