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Quotidian Investments Monthly Commentary – November 2021

December 2, 2021

This is the third iteration of our November monthly report (the first two drafts having already been shredded) and this state of affairs is simply a reflection of the fast-moving, rapidly-changing economic, political and investment scenarios that this month has challenged us with. Events and focal points which we thought were potentially market-moving earlier in the month have already been resolved and overtaken by an unexpected, and thus far unsubstantiated, occurrence in just the last twenty-four hours.

Two weeks ago, equity markets were expressing concern about the possible impact of future inflation and market-makers were very keen to emphasize that, as a consequence, interest rates would likely need to be increased in the UK, in Europe and in the USA to counter that inflationary possibility. Yet again, fear was their communicative weapon of choice.

In the event, at its November meeting the Bank of England held the UK’s headline interest rate at 0.10%. Likewise, the European Central Bank left its key interest rate unchanged and the US Federal Reserve announced that it too was holding rates steady at a range of 0 to 0.25 percent. So much for the road to Armageddon being predicted by self-interested commentators.

One week ago, equity-market attention was firmly drawn to the impending decision from Joe Biden as to whether to retain Jerome Powell (a right-wing and capitalist member of the Republican Party) as Chairman of the Federal Reserve (the USA’s central bank) or to replace him by Lael Brainard (a left-wing and socialist representative of the Democratic Party). When it comes to decision-making, though, Biden has all the alacrity, vision and velocity of an arthritic snail.

Powell was appointed to the top job at the Fed early in 2018 and we believe that he has done a very good job in an extremely testing economic and Covid-affected climate. He has proved himself to be a reliable and safe pair of hands. In typical Biden style though (lacking any demonstrable leadership skills, decision-making competence and having the courage of a shrimp) Biden fudged the issue by keeping Powell in post but appointing Brainard as his deputy. Even the Wizard of Oz’s lion had more oomph than this limp ‘leader’ of the free world.

However, both of these very real concerns have been overtaken by the apparent discovery of a new variant of the Covid virus in the southernmost part of the African continent. As I write this (on Saturday 27th) very little to no reliable factual information has yet emerged but what has been said is full of maybe’s, might’s and could’s representing an entire lexicon of caveats has been in full spate. Hard evidence is in short supply and, indeed has been as rare as discovering an avuncular and selfless individual in the political or stockmarket-making arenas.

With so little quality information to go on, it is hardly a surprise that market-makers have seen a golden opportunity to further enrich themselves by playing havoc with equity prices. At the opening bell in all of the European markets share prices were comprehensively slashed and it was the same story in the UK and the USA. At close of play European markets ended circa 4% down, the UK was down over 3% and the USA staged a late rally to finish with a fall of just 2%.

In the absence of any real news and with a cynical, world-weary- eye it is hardly a surprise that on the run up to Christmas this new variant of Covid has suddenly emerged out of the blue (exactly as had happened last year) and the same fear-laden vocabulary is being employed to infer that it could be more dangerous than previous mutations, it may be more lethal and perhaps it might be immune to current vaccines.

No facts are used to support these assertions because, as the UK government has had the grace to admit, it currently has no facts (scientific or otherwise) to work with. Its default position increasingly relies on ‘project fear’ as a means of controlling public reaction, ensuring compliance with governmental diktats and, possibly, as a timely precursor to another yuletide lockdown. Even for the bubble of self-adoration that increasingly is the disappointing Boris, that method of communication is placing him (not for the first time) as a hostage to fortune. His record of mind-changes gets longer by the week.

Any further lockdowns would be a direct flight path to more economic pain, governmental guesswork ably supported by governmental inefficiency incorporating multiple changes of mind and directions of travel. From our present lack of knowledge and understanding we view the knee-jerk mark-down in equities as a short-term gross over-reaction by opportunist market-makers. If lockdown does become a reality then we will change our view.

On 30th November 2021 the FTSE100 index closed the month at 7079.01 (a fall of -2.19% in the month of November itself) and it now stands at up +9.57% for the 2021 calendar year to date. By comparison the Quotidian Fund’s valuation at the 30th November shows a rise of +0.35% for the month and so the Fund is now up +16,52% to this same date.

We learned from the actions taken by governments around the world in their attempts to control the original iterations of Covid and its economic impact that these measures were the results of ‘expert’ scientific analysis. Sadly, in business, in economics and in accountancy and actuarial analysis, those ‘scientific’ studies (based, as they are, on a series of assumptions) do not produce any consistent degree of accuracy. As any decent accountant or actuary will say when asked to produce an analysis: “what answer to you want to arrive at and we’ll make our assumptions accordingly?”

One of the driving forces to describe the methodology behind this form of analysis can be simplistically summarised as “make an assumption; then prove that assumption”. The flaws apparent in that style of analysis are that it typically involves too many imponderables, thus requiring too many assumptions to be incorporated at the outset and, in addition, the consideration of different timescales produces significantly different results.

The human element then muddies the water further in that the outcome of ‘analysis’ can become heavily biased towards the analyst’s own views and opinions. In short, the final ‘analysis’ is often little more than guesswork. Indeed, all too often throughout the Covid pandemic, that has proved to have been the case; and all too often there have been wild differences between ‘experts’ predictions and real-world actuality.

Finally, we anticipate that inflation (particularly in the USA, in Europe and in the United Kingdom) will continue at its recent higher levels or even move marginally higher over the next six months but it is expected to fall back again thereafter and history clearly indicates that accepting stock-market risk in the medium to long term has always beaten the absolute certainty of losing money through the erosive effect of inflation by ‘investing’ in cash or deposit-based investments.

At the moment and for the foreseeable future the yield on stock-market investments still outperforms the returns available on typical savings accounts. We see that position continuing.

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