Evercore Pan Asset

Some investors spend time and money trying to decide what the market view will be. Clever people pore over graphs and charts, models and economic forecasts, company results and government statistics to come up with a unified, cogent and accurate view of the way of the economic world.

This year shows how difficult that can prove. As I run over my list of Exchange Traded Fund prices, proxies for the movements of the world’s major markets, there are some surprises on the leader board.  Gold is one of the best performers so far in 2010. Up 18%, it implies the market view is that we are in for inflation and more banking and monetary troubles.  The US Treasury bond ETF is also a good performer, up 16% for sterling investors, implying continuing low inflation and a even a deflationary outcome.   US property has done even better for the UK holder of the ETFs, up 19%. That argues for a reasonable recovery and an end to the banking and deflationary problems. 
 
The very varied leaders illustrates that there is no single market view of how the economies and government policies will play out. Markets are full of many different buyers and sellers with many varied views of how things will unfold. It is possible to make money from holding a view which turns out to be wrong and possible to lose money whilst holding an economic view or forecast which is right.
 
On the loser board there is a bit more consistency. Oil, energy and clean energy are the biggest losers, reflecting the downgrading of views of growth for the advanced world economy, and the heavy buying and stockbuilding of oil which took place last year in the first stages of recovery. World shares and European shares are also down for the UK investor.

So are there are any linking explanations or themes that can make sense of all this? Clearly if gold, bonds and property all go up together there is enough cash around to fuel some buying. Monetary easing around the world has allowed some increase in asset prices.  If world shares, European shares and energy go down there must be some disappointment with the pace of recovery, as well as difficulties for the Euro. Beyond that there are waves of doubt and optimism, and different investors pursuing very different investment strategies. 
 
So does that make intelligent investment impossible? No, not necessarily. It means there are many different ways of making or losing money at any given time. It means an investor has to weigh the probabilities. It is also the case that if one approach or forecast is backed heavily but the facts subsequently prove it wrong, there could be a sharp correction in prices on the back of that. This year also shows that currency movements can play a big part in determining returns. The strength of the dollar in the early part of the year against the pound is an important part of those returns. 
 
I have set out in recent columns where I think value lies. Time will tell if enough people share that view to make it happen in the lively, vexatious and sometimes contradictory markets.

As published in Investment Week