If laughter is truly the best medicine and you happen to be sick with something, then you may want to skim Deutsche Bank’s year-end edition of db140.
The bank hands out a number of dubious “awards” before taking on the perils of the “post-truth” world, providing some hope for anyone who missed the Trumpa Claus rally, and reminding you that knowing tail events will occur does not improve your ability to predict them.
My personal favorite is this line: “Messrs Draghi and Kuroda win the Bottomless-Pit Award after wasting $1tn each on asset purchases and inflation ending the year lower than it started.”
Macro Awards season — Please applaud our macro prize winners for the year. The Hillary Clinton Losing-to-an-Underdog Award goes to the US economy for trailing eurozone growth. For attracting 16,000 followers to its new Facebook page, the Kim Kardashian Social-Media Award goes to the Federal Reserve. China’s statisticians win our RaisedEyebrow Award for reporting exactly 6.7 per cent growth in three consecutive quarters. The Robert Mugabe Economic Management Award goes to Venezuela for achieving three-digit, or perhaps four-digit, inflation. China wins again, this time the Finger-in-the-Dyke Award for leaking $300bn-worth of reserves. Our Pokemon Go Award goes to India’s demonetisation drive, for inspiring pointless frantic activity. The UK economy bags the I’m-not-bovvered Award for resilient post-Brexit performance thus far. Finally, Messrs Draghi and Kuroda win the Bottomless-Pit Award after wasting $1tn each on asset purchases and inflation ending the year lower than it started.
Strategy Debunking myths — Some clients fear we’ve entered a ‘post-truth’ era. The db140 team can help. Here are the facts you need to counter some widespread falsehoods. Everyone worries about aging global population but there are 50m more under-five year-olds than over-65s. Scared of the strong dollar? The greenback lost half its value against this year’s best-performing currency: Bitcoin. What about volatile markets? The reality is President Obama will leave the White House with the ten-year yield, dollar-renminbi exchange rate and oil price virtually unchanged since his first inauguration. And here is how to respond to sceptics who rubbish calendar-based investing such as “sell in May and go away”. Buy the S&P 500 on Wednesdays and even-dated Tuesdays while shorting the index on even-dated Fridays and odd-dated Mondays. This strategy has delivered 15 positive years and nine per cent annualised returns since 2000.
Stocks Picking 2016 — ‘Sellers’ remorse’ was the story of 2016 after investors dumped stocks in the first quarter only to see markets roar back from February lows. Indeed, of the world’s largest 5,000 stocks, just six gave investors that, “Whoops, shoulda sold!” feeling after they jumped by half and then fell the same amount (Banc of California among them). Last year there were 372. But for the sorrowful sellers who are missing out now that President-elect Trump has opened his sack and is delivering a year-end Santa Claus rally, fear not — your opportunity set has increased. This year, the gap between the dispersion of US stock market returns and firms’ return on equity widened. In other words investors have increasingly ignored a company’s profitability when buying or selling shares. So good stocks are too cheap and bad ones too expensive. Happy picking in 2017!
Finance Bank rally — Relief is a better description than cheer this year after banks turned around a 20 per cent loss in the first quarter to finish up 15 per cent. So enjoy a well-earned rest and try this 2016 sector quiz. (1) In what month did the MSCI global bank index enter positive territory for the year? (2) Which two banks have more employees than people in the audience at Woodstock in 1969? (3) Of the world’s top 150 banks, which developed market bank stock performed the best? (4) What was the worst performing non-European bank? (5) Which two central banks lost money to cyber crime? (6) By roughly how much have global banks’ sales per employee declined since 2007? (7) American banks outperformed their global peers by 100 per cent in 2016: true or false? (8) The value of banking deals fell by what this year?
Digestif Predicting the unexpected — This year has been defined by unexpected events. Trump and Brexit provided the political surprises while the Panama papers caught wealthy tax dodgers off-guard. Similarly, few predicted Bob Dylan’s Nobel Prize, the Paris climate deal, or the bookmaker-busting triumphs for the Chicago Cubs and Leicester City in the English Premier League. Finance was no different. Few investors in February ventured that the S&P 500 would end the year up ten per cent. Even professional Black Swan hunters such as event-driven hedgies found themselves shooting in the dark. Event-driven managers have returned just one per cent in 2016, spot on the median performance of 13 different hedge fund strategies. And a recent study showed that even the foreknowledge that unexpected events may occur does not improve one’s ability to detect other such events. Still, that’ll cheer many a bank’s derivative desks.