The leap in inflation did exert a restraining influence on shares although not on sterling. The $2 pound is good for shoppers but not exporters and we have to assume shoppers have the wherewithal to make that trip across the Atlantic after they have forked out on the higher interest charges that now appear inevitable.
The tone of the greater majority of the research commentary that crosses my desk continues to be cautious. Yet there appears an acceptance that momentum investing is once again in control. I once heard this described as finding a bandwagon and leaping aboard while it is still moving. Hardly, in my opinion, the basis for securing long-term riches.
Yet you ignore the market at your peril. Deciding 6,000 was the peak would have cost you not far short of 10 per cent. Mind you, the original Lord Rothschild once said he owed his considerable wealth to leaving the last 10 per cent to the next man. Ignoring market sentiment is inherently dangerous but being greedy can seriously damage your wealth.
First-quarter statistics on the FTSE 100 were revealing. The four best performers were retailers. Sainsbury was in the vanguard, as the private equity buyers had not been forced to quit when the figures were compiled, but it was Next next, with Alliance Boots and Morrison trailing. Who would have thought it?
There has been too much time to reflect on what might be in prospect for investors, recovering as I am from surgery that I wish had not proved necessary. Active in mind but not in body, I have been consuming research with an avidity not seen since I was given my first pension fund to run.
It seems the baby-boomer generation is about to start taking social security in the US. Some years back, I recall a colleague building an entire investment philosophy around the propensity for baby-boomers to spend. I consider myself to be one of this generation and if anything I have been more sparing of my money in recent years – a reflection of the fact that there is little else I need. But some analysts are exercised by the fact that all these consumers might be dropping out of the scene.
Of more importance is the fact that this marks the beginning of a period when the number of people entering the workforce will start to decline. Given that this is taking place against the background of another big shift in the demographic shape of the US workforce – the contribution women make to economic prosperity – then perhaps we should be prepared for some significant changes ahead.
Social security payments in the US have been remarkably static for some time. After the Second World War, these hit a peak due to all the payouts associated with the babies being born as a consequence of returning soldiers – those very same babies who are now approaching retirement. The period of adjustment coincided with the empowerment of women. Women entering employment accounted for two-thirds of the expansion of the US labour force during the past 50 years. Today, women account for 50 per cent of the total. There ain’t nowhere to go from here.
The message is that the US dependency ratio is set to rise and the economy will be supported by a declining workforce. Thank God for all those aspiring consumers in the Far East, I say. But we are fooling ourselves if we believe the winners and losers will look the same in even half a generation’s time.
The dice appear to be loaded in favour of nimble, active managers able to exploit the anomalies that arise. Why, then, do I have this feeling of concern? Perhaps it is because May is around the corner while the impending retirement of millions of Americans will have consequences that are as yet unfathomable.
Brian Tora (firstname.lastname@example.org) is principal of The Tora Partnership