11th June 2021

As we move into summer and a welcome period of warmer weather, I thought it would be a good time to reflect on the last year from a ‘markets’ perspective.

The stock market’s response to Covid-19 was breath-taking in its speed. On 17 January 2020, the FTSE 100 closed at 7,674. We did not know it then, but that was to be its high point for the entire year. By 23 March 2020, it closed at 4,993. And while we did not know it then, that was to be its low point for the entire year. Investors should give serious thought to the speed at which the markets reacted, declining at high speed, and going from peak to trough in a matter of weeks. Compare this to the events of the financial crisis which saw stock markets go from their highs in June 2007 to its lowest point in March 2009, a period of almost 20 months. Now while the two events are of course completely different, the financial crash of 2007-2008 now seems to have been almost pedestrian in its reaction when compared to a global pandemic.

As you know, we are firm believers in how ‘markets’ work; investing is for the long term and most importantly we believe that ‘no one size fits all’ and that you should have your own personal investment strategy that meets your individual goals, needs and risk profile. To support this belief, I have used a chart produced by Columbia Threadneedle Investments.

By staying the course and not being tempted to time your investments, the benefits are clear. What is surprising is the level of lost growth by missing the best 10 days in the last 23 years!

As you know, I like to introduce a few relevant articles which may have caught your eye in the past week:

Sausage fight: is the UK heading for a trade war with the EU?

The EU is said to be threatening a “sausage trade war” with the UK if it fails to comply with the “international law obligations” set out in the Brexit agreement 17 months ago. I know we should not smile or even laugh but you cannot help it can you?

G7’s ‘seismic’ tax deal: what will it mean for the world’s biggest companies?

The G7 group of wealthy nations struck a deal at the weekend that would create a global minimum corporate tax rate of at least 15% and make the world’s largest multinational companies pay more tax in each country they operate in.

Finance ministers met in London to discuss the tax reforms and the UK’s Chancellor of the Exchequer Rishi Sunak hailed the agreement as “seismic” and “truly historic”.

The deal announced between the US, UK, France, Germany, Canada, Italy, Japan and the EU could see “billions of dollars flow to governments to pay off debts incurred during the Covid crisis”, the BBC reports. And according to estimates from the Organisation for Economic Co-operation and Development (OECD) as much as $81bn (£57bn) in additional tax revenues each year would be raised under the reforms.

“A process has begun, a precedent has been set,” says the BBC’s economic editor Faisal Islam. “It may or may not end up being transformative, but this moment is historic.” I agree and I think probably about time!

… to finish – who remembers Bernie Madoff?

Bernie Madoff, “mastermind of the largest Ponzi scheme in history”, died 14th April 2021, said Ben Hoyle in The Times. Madoff, 82, was serving a 150-year sentence for swindling thousands of well-heeled clients out of some $65bn in investments – having beguiled them with fictitious annual returns of 10% or more. A former chairman of the Nasdaq, he exuded authority. Among those ensnared were actors John Malkovich and Zsa Zsa Gabor, director Steven Spielberg and the Nobel Prize-winning Holocaust survivor Elie Wiesel, whose foundation lost $15m. “We thought he was God. We trusted everything in his hands,” Wiesel remarked. But Madoff fooled even the pros. Fund manager Nicola Horlick – the so-called City “superwoman” – invested £20m with Madoff, telling the FT just before his exposure in 2008: “he is very, very good at calling the US equity market”.

In reality, Madoff was simply funnelling money from new clients into the accounts of earlier investors and passing it off as “stunning returns”, said Laurence Arnold on Bloomberg. But unlike the infamous Charles Ponzi, whose 1920 scheme “soared and fell in the course of one year”, Madoff “kept his ruse going for at least 15 years, even under the gaze of regulators who visited his office to inspect his records”. The fraud eventually collapsed when plunging stock markets following the Lehman Brothers collapse prompted panicking clients to seek withdrawals. More than a decade on, efforts to recover Madoff’s “ill-gotten funds” continue on behalf of ruined victims, said The Wall Street Journal. “Legal efforts are expected to play out for years.”

I do think of Bernie’s Ponzi scheme when I see the constant news around Bitcoin, so don’t be tempted – “if something is too good to be true, it usually is”!!!

Enjoy the sun.

David Buchan
Director

David Buchan