How to invest in the face of constant political interference

150108-janet-yellen — The Fed's Janet Yellen - politicians and central bankers are making markets unpredictable

You have to hand it to China. They'll screw things up as much as anyone, but they can be pretty quick to react when something's clearly not working.

The "circuit-breaker", designed to stop markets from falling, was scrapped yesterday after it patently failed to stop markets from falling.

Meanwhile, the central bank decided to make the yuan (renminbi) that bit stronger, instead of letting its slide continue.

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Lo and behold, Chinese markets have stabilised.

Now all we need is for a weak payrolls report to give the US Federal Reserve the excuse it needs to bottle out of raising interest rates any faster

Too much politics

(Quick point here for anyone who's understandably bamboozled by that term: "hedge fund" is just a catch-all term for funds that have more freedom to operate in terms of the strategies they follow. And they also charge more than other types of funds. That's it, basically.)

Anyway, emerging-markets specialist Nevsky Capital is one of those quitting. Apparently, "it is more difficult than ever before for us to accurately forecast macroeconomic and corporate variables".

In essence, the problem is that politics is getting in the way. Says Tett: "A decade ago, it was taken for granted by most western investors that economies could be analysed with rational' models". In other words, you could predict what "should" happen, and you'd probably be right.

Since 2008, that's become an awful lot harder. "Waves of capricious government intervention that have taken place since have offered a lesson in unpredictability."

The New Year shenanigans have only served to bring that home. We've got China trying to manage its currency lower, but in a rather trial and error-based way. We've got oil producers across the globe trying to pump as much of the stuff as they can despite or even because of the collapsing price.

And, while it's not really discussed in Tett's piece, there's plenty of capricious intervention in the West too. Money printing, lack of money printing, weird schemes to prop up key markets (just look at all the property market-related high-jinx in the UK) the "logical" outcome of any given situation can be wrecked overnight simply by a bit of tinkering from a government or central bank.

The Fed is the perfect example. You might think that we're heading for a rampant bear market and things look ugly out there. I have no problem with that view. But you also have to acknowledge that at the first sign of the Fed changing its mind on raising rates, our cheap-money conditioned markets are likely to at least bounce.

What looks cheap right now? Commodities have to be getting there

Honestly? Do what you should always be doing. Buy stuff that's good value. Avoid stuff that's expensive. Have a decent balance of assets in your portfolio. And be patient.

Is anything looking cheap right now? Well, one asset class does stand out somewhat. Here's an interesting statistic from the team over at Bank of America Merrill Lynch: the annualised ten-year rolling return from commodities is currently -5.1%. That's the worst such figure since way back in 1938.

The mere fact that an asset class has performed badly doesn't mean that it will imminently turn around. However, when you get to that sort of extreme, it does suggest that the sector is worth watching for opportunity.

BoAML suggests being long gold. "Gold is a hedge against a crash, against a peak in the US dollar, stagflation and/or aggressive future inflationary policy response." I'd agree with that we've always said that having 5%-10% of your portfolio in physical gold is a sensible piece of asset allocation.

However, this year I'd also be looking at gold mining stocks. These were hit harder and earlier than the rest of the mining sector, which suggests that they'll hit rock bottom earlier too. They may even already have done so.

You can read more on the gold mining stocks we like in Edward Chancellor's recent piece on the topic for MoneyWeek magazine.

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