Manic depressive markets and mixed prospects for pensions
Sitting through a succession of presentations from fund managers yesterday it occurred to me that if stock markets were human beings they’d probably have to be locked up for their own good.
Manic depression (or bi-polar disorder as we’re supposed to called in these politically correct times) seems to be the prevailing condition.
The markets now veer wildly between irrational exuberance and needless despair. They’re either drunk on champagne or reaching for the cyanide.
It’s the nature of the beast, of course. Markets have always been prone to over-buying or over-selling with little or no rationale for either.
It’s worse now, though, because the 24/7 nature of the investment universe combined with sheer volume of potentially market-moving information and the speed with which it spreads means that sitting back and having a good think before sending out a buy or sell order is a luxury nobody can afford.
Except if you’re a law unto yourself - as Warren Buffett is.
Buy into a good company, let the managers get on with the job of running it and bank the long-term rewards.
That way you also sleep soundly at night.
Flailing around a paperhanger in a force ten gale, buying or selling on the strength of the latest market rumour, Chinese whispers or broker’s note can lead only to insanity.
One of the managers I listened to yesterday presented a succinct, one page, ten-point assessment of the current state of the markets from the viewpoint of a high-yield corporate bond specialist.
On the downside, he stressed that while the US “has entered a period of stagnant growth” a recession is probably not on the cards. US real estate, however, is a mess, with commercial property joining the housing market in the casualty ward.
A big question market still hangs over the banks, whose $1.2 trillion of excess profits raked in over the past decade came on the back of some highly leveraged positions that could unwind.
On the other side of the balance sheet, corporate balance sheets and cash flows remain in “very good shape”.
The central banks’ “aggressive” monetary and fiscal measures should start to generate an economic upturn by the end of the year. He concluded: “We are conservatively targeting annualised, non-leveraged returns [from high yield bonds above triple-C rating] of around eight per cent over the next three years.”
For those of us faced with matching investments to the long-term liabilities of a pension fund, that was, overall, pretty reassuring to hear.
nvestors, of course, don’t like corporate pension schemes. Think of all that money going to employees rather into dividends or buy-backs.
In fact, they’ve contributed mightily to the near collapse of a once solid and well-funded system.
Just the rumour of a company putting extra cash into its scheme can send its shares into a nose dive.
The closure of most defined benefit schemes means that more and more of us now rely on money purchase plans to fund our retirement.
Whether we end up as prosperous pensioners or paupers is in the hands of all those manic-depressive markets.
