“Out of all the things I’ve lost, I miss my mind the most …”
Think back carefully about your career – for those of us who have been around for long enough, what has really changed in the last twenty/thirty years? Personally, I find the flow of information astounding and that certainly stands out. As a fund manager, I recall the early 1990s when clients would receive investment statements quarterly (by snail mail); today, instantaneous electronic access has changed client behaviour, forever, in many ways.
It is certainly positive that clients have direct access to performance, but it is interesting to note that client holdings and investment patterns have changed materially as a consequence – in the 1950s to 1980s the average holding period of a stock was of the order of several years; in current times average stock holding patterns have changed to days … investors react to news-flow rather than assimilate and assess fundamentals.
We are addicted to news-flow – please raise your hand if you have never had a nervous pang when you couldn’t access your e-mail. Companies thrive on this, we are all ‘connected’ 24/7. Politicians do, too – regular bouts of Twitter fodder have become mainstream. As an example, I struggle to count the number of times the chairman of the US Federal Reserve has recently come under attack in this way. Markets rapidly derive direct reactions without due analysis – the end result is a vicious circle of feedback, with participants craving more news and harder (or stranger) actions. Who saw election results being influenced through social media twenty years ago?
Yet, despite this exponential surge of news-flow, do we really feel better off? At the time of writing, roughly a third of all investment-grade sovereign fixed income bonds have negative yields – which means that investors are desperate enough to pay just to get their money back!
Why, you might ask? We can measure economic policy uncertainty using big data. This technique would typically look at newspaper articles, worldwide, which mention economics and uncertainty together to create an index of policy uncertainty over time. These measures are at their most elevated levels, currently, compared with history spanning a full twenty-year period. Policy uncertainty breeds bad economics and the bond markets are shouting that loudly. To take the idea further, at the time of writing, approximately 3% of corporate debt is negative yielding … investors are ostensibly ignoring the risk of corporates defaulting on their obligations.