Monthly Newsletter – February 2024

1 February 2024

We take a look at investing in a Central Bank and why you are more likely to being crushed by a vending machine than winning the lottery!


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Positivity 2024

Despite basic living expenses remaining a primary concern, a recent survey reveals that the majority of individuals in the UK are optimistic about their financial prospects for the upcoming year.

According to Aegon, 52% of UK adults express a positive outlook on their finances for 2024, while 38% report feeling negative. Notably, those in the 50 to 59 age group, navigating the initial phase of their ‘Second 50,’ are less likely to feel positive, and a gender disparity exists, with females displaying less optimism compared to males.

Two years into the cost-of-living crisis, the survey underscores that ‘paying for basic living expenses’ continues to be the foremost priority for the coming year (37%). Additional financial priorities include building emergency savings (32%) and enjoying life (28%), although the latter has seen a decline from 34% in late 2021.

Almost half (49%) of the respondents in the survey believe that a decrease in inflation would boost their optimism, whereas only 6% anticipate increased pessimism, and 26% think their perspective would remain unchanged.

Steven Cameron, the pensions director at Aegon, noted, “As we step into 2024 and anticipate the coming year, our research indicates a resurgence in people’s confidence and optimism regarding their personal finances. Many attribute this to recent declines in inflation and the hope for further reductions.” Cameron also acknowledged the persistence of the cost-of-living crisis, emphasising that meeting basic living expenses remains the top priority for many individuals in managing their personal finances. Aegon pointed out that those on a fixed income, including numerous pensioners, are grappling with uncertain times, despite an 8.5% increase in the state pension from April. The sustainability of the triple lock guarantee, a topic of ongoing debate, adds to the uncertainty.

Cameron also highlighted this pressing issue, stating, “The elephant in the room remains whether the triple lock is sustainable long term. While the state pension serves as a lifeline for millions, it poses a significant cost for today’s workers funding it through their National Insurance. We urge all political parties to clarify their state pension intentions ahead of the General Election, as it could significantly influence voting preferences.”

Clear Financial maintains an optimistic outlook for 2024, anticipating that the upcoming year will bring positive developments.

Don’t count on the calendar
The calendar year still governs much of what we think and do, even though it is a counting system formed roughly two millennia ago (with assistance from Pope Gregory XIII in 1582 to get the leap year calculation right).
Take for example, New Year’s Resolutions. A whole lot of them will be about getting fitter or healthier.
And so, at the start of every year, there are regular online searches for health-related terms (as you can see in the Google Trends chart below). You can also see the impact of COVID lockdowns in 2020 and 2021 – “gym” searches fell, but “exercise” searches shot up!
It is tempting to think that the calendar would be just as important for financial markets. There are, after all, various ‘calendar effects’ to get excited about – The Santa Rally, selling in May to name two.
At this time of year there is of course the January Effect. Allegedly if the market rises in the month of January, the year will be a positive one for markets. But, if the market falls in January, it will be a negative one for markets.So, have we therefore found a fool-proof way to beat the market? Wait until the end of January and then invest if the market is positive?!As you would expect, the answer is a definite NO!
As the following chart shows, the effect isn’t that common. The January Effect has occurred 17 times in the UK FTSE 100 in the past 30 years (the bars with a black outline n the chart below). That s only just over half the time, so might as well toss a coin!

FTSE 100 Total Return
In terms of generating a good investment return there are, at least, two problems with the strategy.
  • First – some great years would be missed due to a bad January. For example, in 2021 the FTSE lost 1% in January, but then was up 18% over the course of 12 months. 1995,2003,2009,2010,2016 and 2017 were similar.
  • Second- even if you DO invest, you miss out on January’s return while you wait to see what happens! You only get 11 months of return on the years you are right. An example of this is in 2023. The FTSE rose 4% in January but 8% over the year, so waiting meant missing out on half the return.
So, if you had followed this plan by only investing in the FTSE if January is good, you would have made 281% over the last 30 years, compared to 660% you would have made if you had stayed invested for the whole of the time!
What matters is that the calendar should be used to count off the number of years you have stayed fully invested!
Who’d buy a central bank?

The below chart shows the price of three European shares going back 10 years.

This looks like three different businesses and based on the share performance, what would you think?
The pink/purple one could be a small tech firm which did well then became very volatile.
The blue/green might be a consumer staples company or a supermarket chain.
The orange is clearly a company in decline and has been for a while, then lost their final big company in about 2022.But there is a twist…….they are all in the same business – Central Banking.These are the central banks of Switzerland, Greece and Belgium.
We’re used to thinking of central banks as public institutions, basically arms of the government.
You cant buy shares in The Bank of England, The Federal Reserve, or the European Central Bank, but in a few countries in the word you can – Japan, Turkey and South Africa.
So what would be the reason for the difference in the share price performance?

  • With the Swiss National Bank (SNB), pink/purple, it’s speculation. Over the last five years the SNB has accumulated a lot of tasty assets, $9 billion of Apple stock, the 1040 tonnes of gold tucked away in the vaults, the US Treasuries. The hope is that one day shareholders might get a slice of the action, but that probably won’t happen.
  • What about Greece & Belgium? Even though they share a currency and are part of the ECB (European Central Bank) there is a big difference in their performance. They have a lot of assets like the SNB, however these two are allowed to pay out some of the profits as a dividend, like a normal bank.

But the assets they own are very different. The National Bank of Belgium, orange, owns mainly European government bonds, so when rates started rising over the last two years it started making losses. In 2022 the dividend was cut from 97 euros to 1!!
Meanwhile, following the Eurozone debt crisis in 2011, the Bank of Greece, blue/green, had to bail out a lot of Greek banks that it owned. Slowly these banks are being sold back to the market usually at a profit, hence the dividends.
This is a reminder that economics and monetary policy isn’t set in stone! Here are lots of different ways central banks work, the next decade is likely to demonstrate that as policy moves in different directions across the world.

Playing your (investment cards) right

Ever played “Higher or Lower?”

Take a deck of cards, turn one over, and then predict whether the next card will be higher or lower than the first one.

If the first card is a two its obviously higher, if the first card is an ace it’s lower. In the middle, although it’s a lot harder you can make a pretty good guess, particularly if you know what’s been played already.
When investing, it can be tempting to think that the same principles can apply. When an asset class has performed exceptionally well (higher), it can feel like it’s extremely unlikely to do well again (lower).
In 2022 Commodities were the best performing asset class, and in 2023 the worst! But most of the time, that’s not how the market works.

In 2016, Emerging Market equities were by far and away the top performer, so it was suggested that the next year wouldn’t be so strong – but it turns out they were wrong! Emerging Market equities aced it again in 2017, this trounced all other asset classes in terms of performance.

The same happens on the other side of the scale. Commodities were the worst performer in 2014, (minus 17%) and although it was hoped they would bounce back they performed even more poorly in 2015 (minus 24%)!

The problem with applying the logic of “Higher or Lower” to investing is one of knowledge. In a game of cards, we know what the top and bottom of the pack are and how many cards there are in a deck. The information is there and it’s useful.
But an asset class, even if it’s already at the bottom, can always go lower, or higher if it’s at the top! It doesn’t matter what happened before.

Lottery. – Taken from Days like these by Bill Bilston
11th January

The first state lottery took place in England on this day in 1569. It was introduced by Elizabeth I to raise money to strengthen coastal defences vulnerable to Spanish invasion. First prize was a huge £5,000 paid in ‘ready money’, plate, tapestries and cloth. It wasn’t a success, however.Tickets were ten shillings each, too expensive for most people, and the whole enterprise was regarded with suspicion. Subsequent lotteries proved more popular, and helped to fund the building of Westminster Bridge in the 1730s and the British Museum in the 1750s. But, as gambling increased across the country, the lottery eventually came to be seen as a great moral evil and was stopped in 1826 never to be introduced again, until it was.


The chances of winning the lottery are 1 in 45,057,474, or, to express this probability in a non-mathematical way, quite slim.Statically, being crushed to death by a vending machine is a far more likely occurrence – particularly for me, as I use vending machines a lot and I’ve never bought a lottery ticket.





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