A recent poster in my local tube station featured a beautiful young woman lazing in a hammock overlooking the most perfectly azure sea. Luring tourists to Croatia, the caption included the word ‘fjaka’. Now, I’ve never heard any of the languages of the Dalmatian coast, but I thought I knew this word. Looking it up online, I learnt that it means not just a lazy feeling, but: "a psychophysical state of mind, with aspiration for nothing"; "a gift from God".
My Buenos Aires-born Dad has always used the word ‘fiaca’, the Lunfardo underworld slang spoken around the River Plate; it means, to take things easy. My mother added that in Lombardy, where the slang originated, it might also mean to be too tired for anything due to malnutrition. Which ties in with another description, "in countries such as India fjaka is being achieved through long-term starvation and meditation".
What has this got to do with investing, you ask? My feeling is that a decade of zero interest rate policy, quantitative easing and sky-high asset prices have caused complacency, inertia, unrealistic expected returns, and an unquestioning attitude to financial advice. Some call it the TINA trade: There Is No Alternative.
Developed markets are said to yield nothing and are boring. Institutional investors – the clever crew – found out just how quickly capital can evaporate in what was meant to be cast-iron credit. They managed to lose 6 per cent of face value on Italian BTP government bonds. Meanwhile, in the same week, my annual statement from the UK’s National Savings & Investments showed my index-linkers yielded 3.35 per cent – with zero charges, excellent paperwork and reliable telephone access.
Emerging markets are seen by some as a way to spice up one’s portfolio – literally – a systemically important bank showing an array of portioned spices ready to cook up a curry to advertise its wealth management arm. Touted because of stronger economic growth prospects, or far higher yields, Brazil a cautionary example today. The central bank’s key Selic rate is 6.5 per cent, a big improvement on the ECB’s minus 40 basis points. But it’s also at a record low, down from over 25 per cent in 2003, and although inflation now is just under 3 per cent, it almost hit 11 per cent in January 2016.
Frontier markets, many say, are too risky. First: define ‘frontier’. Until relatively recently mainland China was included here; yes, really, the second biggest economy in the world. Philippines today would be classed as frontier, along with Vietnam, some African and South American nations. But what about Saudi Arabia? Interesting that controversial strong-man President Duterte (sound familiar?) saw the Manila main stock index hit a new record high (with a relatively small pullback this year). Meanwhile, the peso has been relatively steady this millennium, trading well within a 1.6 per cent deviation of the mean regression, currently at 45 pesos to the US dollar.
‘Derivatives are risky’, is the usual refrain. Leverage is risky, derivatives have been used to hedge exposure for at least 100 years. So why the latest craze for exchange traded products? All too many of these are not cash based but underpinned by derivatives, and all you end up with is an IOU. Yet investors focus only on shaving another 5 basis points off the annual charge.
