Argonautica

Professional investors can review published thought leadership and market updates from the Argonaut Investment Team.

4 posts found for 2021

‘Think short-term!’

Equity investors talk less about time horizons than their fixed income counterparts but when they do it is almost always to encourage a “long-term perspective”. The process of economic evolution will eventually and incontrovertibly ensure that the “wonderful business” will triumph over the “mediocre”. Since the quality of a company is invariably already reflected in a higher stock market valuation this would also imply that valuations are relatively unimportant over the long-term. 

‘So Cathie Wood’s Tesla price target is now $3,000! But what might Volkswagen be worth?’

In 1918, the Ford Model T, accounted for over half of all cars sold. Through efficient assembly line production Ford disrupted the automobile industry by drastically reducing manufacturing costs to achieve a market share not previously seen and still to be surpassed. It took until 1972 for the VW Beetle to reach the Model T’s 1925 previous record of 2m vehicles sold in a calendar year.

‘Will the “bond vigilantes” force Powell to do “whatever it takes”?’

There is increasing scepticism in the bond market that the Federal Reserve will be able to suppress medium to longer-term market interest rates. If investors cannot be persuaded that the likely record robust growth we are about to witness is “transitory” then Chairman Powell will at some point face a choice: lose credibility through tapering asset purchases and raising short rates earlier than previously guided (potentially killing the recovery); or increasing (or threatening to increase) asset purchases of Treasuries to re-establish control over the yield curve.

‘The real hedging crisis’

“Hedging” has always brought economic progress with controversy. To “hedge” land through enclosure reduced the risk to livestock and secured property rights, a crucial development in the British Agricultural Revolution, but which ultimately also resulted in the loss of common land. When the modern phrase “hedging our bets” was originally used in Restoration England comedy The Rehearsal, the “hedging” concept was already being applied to reducing or mitigating general financial risk through offsetting contrary positions.