Longview: The green light to load up

How would you describe the backdrop setting for markets at the moment? Is it still the central bankers at the decks keeping everyone spinning?

Yeah, I think they are keeping everything spinning. Yeah, absolutely. I mean Jerome Powell, his comments in December were quite significant when he, at the committee meeting, said that he thought inflation needed to be significant and persistently above target before they were even going to sniff a thought of a rate hike. That was huge.

I think that was liquidity, central bank largesse, that was just a green light to load up. And quite a lot of hedge funds switched their positions on the back of that from short to long. And we had that whoosh up in December and to Jan. They're not the only part of the rally in the equity market, but they are a key part. Absolutely.

What are the other parts?

Well, the other part is the fact that we've got a global economy re-accelerating. Coronavirus is a bit of a hiccup, sure, but the trend is absolutely up. People get confused because they expect China to do a huge stimulus like they did in 2016, and this is not China's turn to drive the global economy. There's really three engines; America, Europe and China.

China doesn't always participate in the sort of mini cycle upswings. We had one after the Euro crisis, mini cycle upswing globally. We have one after 15/16, and now we're in our third one since then. And of course, after the Euro crisis, it wasn't about China. They were trying to deleverage they were muddling along. You may remember they were absent. '16 they were there, now they're absent. It's about the Western consumer, the American consumer, and indeed the European consumer more than people realise, are driving this global recovery.

If there's a mini upswing in place, being driven by largely Western consumers, how far into it are we, and what's the evidence to support that that's what's taking place?

I like to think of these mini cycles as sort of roughly three years. I mean don't get too precise on it. But, we're in year two. Last year was year one, the classic year one in the mini cycle as the central banks get going. They turn around, they cut, earnings don't really grow, the economy is still slow, but the central banks are providing liquidity. Year two is really the case for the global growth story upswing becomes more convincing.

What's the evidence? Tonnes of it. US housing cycle, look at housing starts and housing permits, just taking off. Been flat for three years, last few months taking off. And the rule of thumb is if you get housing right, you get the US consumer, right and you broadly get the US economy right. That's good. We've had an inventory cycle in the States, which is de-stocking and has largely run out. Now we're going to get a restocking, and the labour market in the US remains robust.

It's all pretty good over in the States. Bits and pieces of that in Europe, although it's not as obvious.

So for investors, 2019 was a bumper year. Should we expect another bumper year?

Yeah, for sure. It always makes me laugh because people love the idea, if you had a big year, you're going to have a bad year or an average year. But actually, there's been five years when the S&P has done 30% or more in the last sort of 40 odd, and almost always afterwards it's a plus 15 plus 20. Just because the S&P has gone up 30 doesn't mean it doesn't go up 15 the next year. In fact, we're already up about five or so and we're not far into the year.