The current period of global market weirdness with next-to-zero interest rates, stubbornly low inflation, low-ish growth and asset price increases has been with us for nearly a decade since the Global Financial Crisis (GFC) which culminated in late 2008. Until very recently, bond yields persisted in their trends towards zero and, in some cases, beyond, and equities flew close to the sun in many instances with the wax in their wings being artificially hardened by flows into passive funds and ETFs.
With older household names constantly warning us that this era (either a Goldilocks one or a Golden one, depending on your young viewpoint) cannot persist, how is it that the distortions prevail? The chart below may begin to tell us why.
Admittedly amongst the more junior ranks, but more than half of the fund managers in London, New York and Paris have worked their entire careers since the GFC. Unless they have studied history well and unless they listen to the other 48% carefully, these fund managers think that zero interest rates are normal and the recent correction merely a blip on a one-way trip upwards for asset prices.
One needs to read the chart carefully because a fund manager with 15 years’ experience (still with plenty to learn) is classed in the same category as a 30-year or 40-year veteran.
So, with interest rates, at least in the US, starting to edge upwards and asset prices starting to show some signs of downward volatility (a foreign concept to the 52% above), fund managers who have indeed lived through a few cycles will suddenly seem wiser than they have done for the last few years.
Comparisons with prior periods will become strangely relevant and although history may not repeat itself, it may show strong signs of rhyming – to paraphrase something Mark Twain probably never said although it is ascribed to him.
It will do the youngsters a world of good to chat to their grey-haired colleagues and learn how markets behaved in “the old days” of real interest rates and price/earnings ratios in the teens or even single digits. It’s not as though it was in the days of gramophones and telegrams – it was only 20 years ago that the Asian markets wobbled and less than that to the Dotcom bust. But it was before some of these young fund managers labelled “mid-career” were even in high school!
Investors may do well to examine whether their young upwardly-mobile fund managers even have senior partners to give them sage advice or have they started their own shops because they now know everything after a whole nine years?
Download: Thank heavens for grey hair! – Weekly Comment – March 8, 2018
