“Success breeds complacency. Complacency breeds failure. Only the paranoid survive” – Andrew Grove, Intel CEO
Listening to and reading each fresh piece of news on Greece it seems clearer and clearer that the current arrangement is yet another can-kicking exercise, albeit one off the boot of Jonny Wilkinson. Let us not forget that capital controls still exist, there has been no debt relief and the debt pile continues to grow all the way out to 2020, when it will exceed 200 per cent of Greece’s GDP.
These are just a few of the issues surrounding the father of European democracy, which, despite having lost its most recent battle with creditors, still holds a strong hand in the long-term outcome of the European project.
There is much to cheer around the world. The historic agreement with Iran will unlock billions of dollars that have previously been held under sanctions, while adding further supply to the oil markets, which will drive prices down further and essentially put more money into the pockets of consumers.
In spite of the sidestepping of the real Greek issue, the fact the European Union remains intact is also a positive. It shows that, in spite of German finance minister Wolfgang Schäuble’s comments to the contrary, membership of the euro currency is, for the time being, irrevocable.
Yet markets seem to have forgotten that only a few weeks ago they were sliding down the wall of worry.
European stocks are just shy of their year-to-date high, up nearly 15 per cent. On the other hand, gold, so long favoured as a defensive asset, is languishing back at levels last seen in 2009.
Over in China, along with a significant correction in its stockmarket, we have witnessed perhaps the most confusing official 7 per cent year-on-year growth data, even by historic standards, in the face of abundant evidence its economic growth is slowing much faster than the official figures claim.
Then we turn to miners. If the world is growing at a decent clip, then surely those things that we need to build the instruments of growth should be, if not at new highs, then certainly exhibiting what my chartist colleagues would call positive momentum. Yet the companies that provide the world with these materials are pricing at levels previously seen in 2008!
Then finally bonds. Over the past few weeks we have had further confirmation that interest rates are expected to rise in the UK and US, yet bond yields have strengthened.
While we are used to mixed signals and unexpected asset class returns over the past five quantitative easing-fuelled years, it seems to us that investors are being overly complacent in their asset allocations. As most of Europe goes off to the beach, volumes will be thin and markets are likely to see higher intraday movements. Once again, it will be the paranoid that survive; caveat emptor.
Paul Surguy is a discretionary fund manager at Kleinwort Benson
