OVERVIEW I n June, we hosted Portfolio Adviser Summer Congress, held exactly one week ahead of the EU referendum. We now know the result; we may not like it but the voting has finished, the result is in and Brexit means Brexit, so the conversations at the autumn event turned to an examination of what we do now from an investment point of view. Bearing in mind we do not yet know the rules, a potentially more pressing question for the fund groups present is whether they will need a presence in the UK and in Europe, with Dublin and Luxembourg the favourites. To paraphrase a classic cricketing put-down, Brexit is not even the biggest problem in Europe, so what came out of the various discussions was a sense of the complexity of the low-yielding world in which we are all operating. Brace yourselves One welcome addition to the conversa-tion was Danny Blanchflower, a mem-ber of the Bank of England’s Monetary Policy Committee between 2006-09. He knows a thing or two about surpris-es, and his keynote speech (p8-11) was an insight into how central bankers think, what they are thinking right now and the potential impacts on invest-ment opportunities of the surprises that could be coming our way. “The reality is that for a central bank-er, there are shocks coming,” he said. “The economy is being hit, but you ha-ven’t adjusted to the last shock. You are sitting there now in a very difficult situ-ation. You had a chance to rebuild and a chance to make these structural re-forms, and you didn’t make them. “Your problem now is that you are really vulnerable. At least in 2008 we could cut interest rates from 5.5% to 0.5% and start buying assets, but now the assets to buy are running out. What assets is the ECB going to buy? “As investors we have to be cautious, but the benefit of all the quantitative easing is that it will push up asset pric-es. It will push up equities, bonds and the price of corporate bonds. There are places to go, but there are nasty surpris-es coming. I’ll put my money on it.” KING MAKERS The theme behind Portfolio Adviser Autumn Congress was whether or not macro is still king when it comes to asset allocation and portfolio construction, or are company fundamentals the principle driver? Gary Corcoran Blanchflower was the keynote speak-er at our first ever Portfolio Adviser Con-gress, in Benahavis in southern Spain. His words then hold true now: “Peo-ple say to me all the time that QE hasn’t worked. I don’t agree with that. Bernan-ke doesn’t agree with that either. When asked to tell people what the counter-factual is, he says if we hadn’t rescued the banks, done QE or cut rates, what would the world have looked like? “He says unemployment would be much, much higher; something like it was in the depression, 25%. We saw what happened when one or two large financial firms came close to failure. Imagine if 10, 12 or 15 firms had failed, which almost happened during the fall of 2008. It would have brought down the entire financial system and would have had enormous, long-lasting impli-cations for the global economy, not just the US economy.” We are in a stronger position now be-cause of QE but what future indicators should we be looking at? The answer, according to Blanch-flower, is the same now as it was then: www.portfolio-adviser.com ‘ THERE ARE PLACES TO GO, BUT THERE ARE NASTY SURPRISES COMING. I’LL PUT MY MONEY ON IT’ Danny Blanchflower, economist 4 Portfolio Adviser Guide to Autumn Congress November 2016
Portfolio Adviser November Guide 2016: Page 4
