What caught my eye this week.
Well that could have been a lot worse, eh? Remember: at the start of 2023 we were assured that both a terrible recession and most likely further stock market falls were all but nailed-on.
But as things have turned out, the global economy has held firm. Even in the UK, where consensus forecasts were for a 1% decline in GDP versus the 0.5% advance that economists now believe [1] we’ve seen.
Hardly a rip-roaring year – and I’m putting aside the high-profile conflicts making life miserable for various millions right now – but I think anyone would have taken it in January.
As for stocks, US equities have chalked up a barnstorming recovery, led until very recently by the so-called ‘magnificent seven’ tech giants. These genuinely great companies look pretty expensive today – just like they did in December 2022, before they soared.
Passive investors who shrug and say “who knows?” are smarter than they sound.
Mystic missive
So what will we see in 2024?
Who knows! (See, I can be a clever clogs too).
But if you’re a sucker for disappointment you could have a read of Vanguard’s 2024 forecast [2].
This 24-page PDF is mostly focused on the prospects for the future path of interest rates – an editorial decision which is in itself a kind of prediction.
Indeed perhaps the report’s most strident declaration is that ‘bonds are back’:
The transition to a higher real interest rate environment has challenged investors in the last few years, leading to negative bond returns in both 2021 and 2022. Central banks increased policy rates at the fastest pace in decades and yields increased by 300 basis points or more. Long-term yields – a strong predictor of expected returns over the long-term – are now back at levels last seen before the GFC in 2008.
This development has raised our expectations for fixed income returns significantly, to around 5% on an annualised basis over the next decade, for UK aggregate bonds and global ex-UK aggregate bonds (hedged).
As a result, our outlook is better than it has been during the past decade.
Higher forward returns are of course the silver lining to the unprecedented price declines for bonds that we’ve seen over the past couple of years:
[3]
None of which should be a shocker to Monevator regulars.
We stressed much the same thing a year ago [4] and have written more about bonds [5] in the past 18 months than in the preceding 15 years…
Britain not a bargain?
Finally, on a provincial note the fund giant is curiously contrarian on the apparent cheapness of UK equities.
Vanguard says:
…our views are reflected in the declining expected valuations in our 10-year annualised UK equity return forecast.
Despite some expected rate relief, price/earnings ratios must ease somewhat for UK equities to return to fair value.
Now you know what passive investors say…
…who knows.
But as a dumb and naughty active investor [6], I have more in (select) UK equities going into 2024 than for many years, albeit mostly in companies with a global outlook. So I’ll be studying Vanguard’s contrary view closely this weekend, as I work my way through the post-Christmas chocolate hoard.
Hope you have a great New Year’s Eve – whatever your expectations are for the 12 months to come!
From Monevator
A capital idea – Monevator [7] for Mogul members [8]
From the archive-ator: Try saving enough to replace your salary – Monevator [9]
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
Surprise inflation fall could see Bank of England cut rates faster – BBC [10]
UK becomes first G7 country to halve its carbon emissions – City AM via Yahoo [11]
Sunak accused of ‘desperate’ inheritance tax cut briefing – Sky News [12]
Top 10 in-demand property hotspots in the UK – Guardian [13]
The hedge fund traders dominating a massive bet on bonds – Bloomberg via Yahoo [14]
Science debunks the myth of ‘beer goggles’ – Sky News [15]
[16]
UK house prices fall at fastest pace in more than a decade [Search result] – FT [17]
Products and services
Read your energy meter now before the Ofgem price cap rises – Guardian [18]
Could physical cash soon be extinct? An expert’s five-year review – This Is Money [19]
UK savers urged to act quickly for the highest-paying fixed-rate accounts – Guardian [20]
Get £100-£200 cashback when you open an account with Interactive Investor [21]. Terms apply – Interactive Investor [21]
An expert guide to Christmas present returning and other refunds – This Is Money [22]
Open an account with low-cost platform InvestEngine via our link [23] and get up to £50 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine [23]
The 5.4% fixed rate that’s only available if you have a maturing NS&I bond – This Is Money [24]
Is healthy food more expensive? – Be Clever With Your Cash [25]
How to avoid a kitchen extension nightmare – Guardian [26]
Hargreaves Lansdown cashback offer for pension transfers – the largest pots are eligible for £3,500. Terms apply – Hargreaves Lansdown [27]
Ultimate fantasy homes in Great Britain, in pictures – Guardian [28]
Comment and opinion
Why [US…] stocks have astounded – Morningstar [29]
Four timeless investing principles that never change – Darius Foroux [30]
Don’t trust your gut – Humble Dollar [31]
Only pessimists pick bottoms – Investment Talk [32]
24 rules for 2024 – Humble Dollar [33]
CEOs will soon admit return-to-work mandates don’t boost productivity – Fortune [34]
Larry Swedroe: momentum’s turning points can be costly [Nerdy] – Morningstar [35]
Forecasting and predictions mini-special
What will happen to house prices and mortgage rates in 2024…? – Guardian [36]
…and what about gas and electricity prices? – This Is Money [37]
Will 2024 be an up year for the stock market? – Of Dollars and Data [38]
2023: another miserable year for stock market forecasters – Maths Investor [39]
Naughty corner: Active antics
The offbeat markets that offered bumper returns in 2023 [Search result] – FT [40]
AI models can’t analyse SEC filings, researchers find – CNBC [41]
Munger’s Daily Journal warns of lower returns without him – Business Insider [42]
How to earn $23m aged 33 as a quant in a hedge fund – eFinancialCareers [43]
Things learned in 2023 mini-special
52 interesting things learned in 2023 – Kottke [44]
The biggest breakthroughs happening in science right now [Podcast] – The Ringer [45]
81 things that blew our minds in 2023 – The Atlantic via MSN [46]
[Another] 52 things learned in 2023 – Kent Hendricks [47] [h/t Abnormal Returns [48]]
Kindle book bargains
When McKinsey Comes to Town by Walt Bogdanich – £0.99 on Kindle [49]
The Birth of Netflix by Marc Randolph – £0.99 on Kindle [50]
A Kidnap Negotiator’s Guide to Influence and Persuasion by Scott Walker – £0.99 on Kindle [51]
Dead In The Water by Matthew Campbell – £3.99 on Kindle [52]
Environmental factors
COP28: where do greener investors go from here? [Search result] – FT [53]
Swedish ‘Spotify of heat pumps’ hopes to reach more UK homes – Guardian [54]
The global population will get to 10.4bn, then drop – SMH [55] [h/t Indeedably]
Natural History Museum describes more than 800 new species – BBC [56]
Plan to restore UK’s rainforests welcomed by campaigners – Guardian [57]
World’s tallest wooden wind turbine starts turning – BBC [58]
Farewell, Java stingaree, the first recorded marine fish extinction – Mongabay [59]
Brexit (sub) standards mini-special
How post-Brexit UK is drifting from EU standards – Guardian [60]
Pint-sized wine bottles are all that survives [pointless] Imperial measures push – BBC [61]
UK’s fintech firms face ‘growing skills gap’, warns top chief… – City AM [62]
[63]
…despite migration being at [hilariously ironic] all-time highs – Sky News [64]
Off our beat
Respect each other’s delusions – Morgan Housel [65]
Oliver Burkeman: how to stop wasting your life [Podcast] – Mark Manson [66]
Australia has a gargantuan property price problem, too – BBC [67]
Living funerals – Sky News [68]
Rewrite for humans – Seth Godin [69]
Slowing the clock – Humble Dollar [70]
And finally…
“We have three baskets for investing: yes, no, and too tough to understand.”
– Charlie Munger, Poor Charlie’s Almanack [71]
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