Today’s edition of 20/20 Vision comes from our former HSBC fund manager and Grenadier Guard, Charlie Morris.
While the rest of us have ideologies and investment strategies to guide us, Charlie seems to rely on his experience and research.
He’s neither put off nor enthusiastic about gold or bitcoin, for example. And yet, he actively trades and invests in both. Based on their merits at the time only.
This makes his predictions for 2020 especially interesting. They’re neutral and can seem inconsistent, until you read the carefully thought out reasons for each one.
Charlie always details the why very carefully. It can be as interesting and surprising as the predictions themselves, as you’ll see in the Q&A below.
But before you find out the 2020 prospects of everything from bitcoin to commodities, and everything in between, check out the offer our publisher has for you.
Best wishes,
Nick Hubble
Editor, Southbank Investment Research
20/20 Vision
A Q&A with Charlie Morris
Charlie, you have 100 words to prepare investors for 2020 – what are they?
The post-2016 nightmare is over. The EU can huff and puff, but Boris Johnson has a majority to fulfil his mandate. It’s so big that he can follow a centre line and won’t be a slave to the European Research Group.
He’ll not only get Brexit done, but boost confidence in the UK. There is pent-up demand and now that the hard left has been resoundingly defeated, I am upbeat about the prospects for our great nation.
What was your most successful prediction of 2019?
Where do I start? It has been a fabulous year for The Fleet Street Letter Wealth Builder Whisky and Soda portfolios. The two main themes that paid off were gold in the first half and UK domestic stocks in the second.
I felt 2019 would be all about the pound and politics. I went bullish gold and gold miners this time last year, with a high conviction position. I’m not a gold bug, nor am I a broken record on the subject. I have researched it for two decades and have an enviable track record on the subject.
Gold was around £950 per ounce and soon rallied to near £1,300 per ounce. I sold in the late summer, as the pound was too low while gold shot to a 15% premium above fair value. I took the opportunity to take profits, as not only was gold ahead of itself, but a sterling rally would stick the knife in.
I then switched into domestic UK stocks, while heavily reducing non-UK exposure. The double whammy came from 1) avoiding overseas exposure and 2) buying cheap UK assets.
As I said, it has been a fabulous year.
What surprised you most in 2019?
The scale of the recovery in the S&P 500. It was undeserved for many reasons, but it reminds us how liquidity is king. The largesse in equities has, in part, come from economic growth, but bigger drivers have been easy money, financial engineering and stimulus. Earnings are lower and there’s a new cold war but that doesn’t seem to matter.
The so-called Goldilocks scenario, where there is just the right amount of inflation, seems to be long in the tooth. US equities scare the living daylights out of me.
What is the biggest opportunity of 2020?
Budget deficits are back in fashion. The US has a huge one, as does Japan. Germany doesn’t have one, but would love a big one, and China has a small one but may end up with a big one. Boris’ one keeps on growing and so it goes on.
Fashions change and now that the masters of the universe are “certain” that inflation is dead, they are going on a spending spree fuelled by cheap money. The world wants infrastructure like it’s the Industrial Revolution all over again. Demand for commodities will soar and the new gold bull market is simply telling you what lies ahead.
I love commodity bull markets as they are a speciality. The lights are amber. They’ll go green as soon as the pound finds its new home.
What is the biggest threat of 2020?
Oil shock. The risk is rising for 2020, and will grow over the course of the 2020s.
Energy is the most important input cost in our lives. For example, food production requires diesel. If the oil price rises, food prices must follow suit. That squeezes the consumer, harms the economy and reduces purchasing power. Even if the green revolution surprises us all, it will take years before it becomes a dominant force. In the meantime, Asia keeps on growing.
According to the OECD, not only is China forecast to fly past the almighty US by 2030 in terms of GDP, but India too. The US could be humiliated into third place. President Donald Trump doesn’t like that idea and hence a new cold war with China is underway.
Europe might be even more embarrassed as it may not have a single country in the top five. Indonesia, a nation of 300 million people by 2030, might squeeze past Germany. With Japan’s place relatively secure, an Asian decade seems increasingly likely.
While energy consumption has remained flat in the OECD countries, the fast-growing non-OECD countries have seen their consumption nearly double this century. It grows by 3.3% per year and shows no signs of slowing down.
The US shale boom came to the rescue post 2006, bringing another 6 million barrels per day (mbpd) to market. That has kept a lid on the oil price since 2014. But if the non-OECD countries carry on at this pace, a future oil shock becomes more probable than possible. Consider that the OECD countries are growing too, and you can see how this Malthusian story mighty play out.
Name a trend from 2019 that will continue into 2020.
The gold bull market has legs. I see a 400%+ return by 2030. Miners, silver and platinum should do even more. Mainstream investors will start to take notice in 2020.
Name a trend from 2019 that will reverse in 2020.
US outperformance of global equities is massively overdone. The same goes for the defensive “safe” stocks. There is massive value on offer here in the UK and in Asia. That’s where the market will focus next. Safe stocks will be the next humiliation for the fund management industry as we discover Woodford 2.0.
How will the 2010s be remembered?
The decade that made some people wealthy for the wrong reasons. Consider that the 2000s saw a total return (including dividends) of 18% for a diversified UK portfolio. In contrast, the 10s delivered 118%, yet growth was lower. Financial engineering is an odd concept. Yet it lies at the heart of our system.
What will the 2020s be remembered for?
Inflation, it will be on par with the 1970s.
What was the best book you read in 2019?
Daylight Robbery by Dominic Frisby.
History is normally written through the lens of war or leaders. Dominic tells that story through tax. Our leaders have been grabbing what they can since the beginning of time. Taxes change behaviour and without them, wars would be unaffordable.
Taxes are seen to be a moral cause. But are they? Dominic has written a thoroughly enjoyable and well-researched book. Buy it for a socialist friend. You never know, you might even turn them.
What would you buy Jeremy Corbyn and Boris Johnson for Christmas?
I’d buy both of them a copy of Daylight Robbery by Dominic Frisby. I would like it to keep them on the straight and narrow. It’s easy to blow a million quid on a shopping spree, not that I have ever done it. Much harder to earn it.
Political spending promises are unimpressive, and I think the nation rejected Labour for many reasons, but in particular, they realised the promises made were ridiculous.
An old friend, who was turned by the militant Momentum movement, told me that “Politics isn’t just about money.” I replied that, “It’s only about money.”
How big is the government planning to be (and how small will the private sector be in return) and are they financially prudent?
How you spend it is the easiest part.
Which book will you read over the holidays?
With my family coming together, and a fun-packed Christmas, there’s little time to read. I do most of my reading on trains. Holidays mean no trains, which is bliss. That said, there’s a 1 in 100 chance that I’ll be given a good book. If that happens, which I doubt, I’ll be busy after Boxing Day.
Do you have any film recommendations for your readers?
If you appreciate Australian humour, which most Brits do, I would watch The Castle. It’s about a chap who lives at the end of a runway. Property developers try to oust him, and the plot thickens. I was in stiches.
What are you optimistic about?
I love cryptocurrencies. I don’t own any because they are going through yet another crisis. But I have spent the past six years learning about how to trade them. I am looking forward to the next buy signal.
Category: Market updates