EDITOR'S LETTERMerryn Somerset Webb
Judge less and buy more
A few days after the Bank of Japan’s decision to step up its quantitative-easing programme, I interviewed hedge fund manager Hugh Hendry (the interview will appear in the magazine in the next few weeks, and there will also be a video available to subscribers).
Last year, Hugh rather stunned his investors – who like to think of him as a counterweight to the optimistically minded investors they also have money with – when he wrote to them saying he had become very bullish on global stockmarkets.
At the time he explained his thinking as being a simple result of the tendency of the global economy to deflation (due to post-bubble deleveraging), and the tendency of the world’s central banks to react to such deflation with increasingly radical monetary measures.
Once, cutting interest rates below 5% was seen as pretty feisty. Now negative interest rates (where you pay the bank to keep your money) aren’t thought remotely odd – one bank in Germany charges savers 0.25% if they have balances over €500,000 – and if you aren’t printing money, you aren’t doing your job.
As long as this central-bank battle with deflation continues, most equities can really only rise. Or as Hugh puts it, “the structural deficiency of global demand continues to radicalise the central-banking community: you need to own stocks”.
So what does Hugh have to say now? Much the same.
• Read the full editor’s letter here: Judge less and buy more