Saltydog Portfolio: borrow money from pessimists - they don't expect it back!

bank-of-england-and-london-bus-with-investment-matrix

Central banks, with the agreement of politicians around the world, are creating and devaluing money at an astonishing rate as they lend money to banks, financial institutions and big businesses at, or close to, negative interest rates.

They do this whilst making optimistic statements about resolving the world's ever-increasing debt, which now stands at hundreds of trillions of dollars.

These people are not optimists; they are pessimists and they do not expect to be repaid. They are blithely poisoning the well, and killing themselves at the same time. Banking as it is fast becoming is bound to fail.

Charging depositors to hold their own money must surely be the final disincentive, and the insanity that sees banking decentralise and die. I have to say that the thought of 'cloud banking' makes me extremely uncomfortable, having only just come to terms with the prospect of losing my chequebook and being forced into internet banking.

UNREST IN CHINA?

Looking further ahead, and considering where the next major unrest and stock market disturbance might erupt, we perhaps need go no further than China.

saltydog-tugboat-allocation-septemberChina's low-cost workers, moved from the countryside into its newly created cities, have replaced the high-cost workers of western nations. The question now is how long it will be before robots with artificial intelligence replace these same low-cost workers?

It's not far away, and then the extraordinary growth of China and the emerging economies during the last 20 years may be brought to nought.

Technology will have turned the theory of 'economy of scale' on its head and this, combined with nano-technology and 3D printing, will favour localisation of manufacturing to where the products are needed - be it in the east or the west.

Hopefully, when this becomes a reality, China will have reached a stage where its own consumption will have become self-sustaining and the transition will take place peacefully over a number of years.

saltydog-tugboat-portfolio-performance-septemberEven if true, both of the above synopses are some way ahead and should not be having an immediate effect on our investment philosophy. Certainly there is no sign of these events taking place in our Saltydog numbers.

On a personal level, as I have a scientific background, I have been avidly looking for that fund manager who is researching and successfully investing into these new technologies of the future.

As yet I have only found the investment trust Polar Capital Technology; I'm still waiting for a unit trust to appear in our numbers.

Looking to the future, we at Saltydog believe that investing is not about waiting for the storm to pass - it's about moving to a place with fewer storms.

As you know, we are momentum traders who believe that being in the right Investment Association (IA) sector at the right time leads to success.

SPOTTING OPPORTUNITIES

Opportunities to spot new trends are rare - it's like turning off an American freeway: if you miss one turning, there is often a long wait until the next one comes along!

Looking at our numbers, it does appear that the two IA sectors, UK small companies and UK all companies, may be two such opportunities.

During the last few weeks we have seen these sectors recover from the falls in May and June.

In the UK smaller companies sector, funds such as TB Amati and Cavendish Aim are showing up well, but they are very small.

selected-uk-small-companies-funds-performance

They have the advantage of being able to invest into relatively small companies, without their shareholding becoming too large, but the problems these funds have is in digesting large inflows and outflows of money.

In the latter case they may impose dilution charges to deter large withdrawals. Larger funds such as Jupiter and Liontrust do not have this problem, but may impose a small bid/offer spread at the time of investment.

The leading UK all companies funds follow a similar trend, but over the last six months the Standard Life UK Equity Recovery Fund is head and shoulders above the rest.

selected-uk-all-companies-funds-performance

This is another small fund and it has also been one of the most volatile - unfortunately the faster they rise, the harder they may fall, and so it's important to keep track of its progress.

When making such investment choices it is always useful to look at the decile history of the funds under consideration to get a measure of their performance.

But none of this will be a problem if these two sectors go on an upward run. As has been said many times before: 'A rising tide floats all boats.'


Subscribe to Money Observer magazine

 

Comments

Post new comment

The content of this field is kept private and will not be shown publicly.
By submitting this form, you accept the Mollom privacy policy.