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Volume 11, Edition 27 | September 5 – September 9, 2022

Invest Like a Queen

Doug Walters, CFA
Queen Elizabeth II would have made a great portfolio manager. In this week’s Insights, we remember the Queen and call out one of her greatest characteristics – consistency.

Contributed by Doug Walters, Max Berkovich, David Lemire, Eh Ka Paw

Having lived in England for five years, I have a special affinity for the place – particularly as both of my kids were born there. In fact, they were delivered at Saint Mary’s, the same hospital where Princes William and Harry were born (though the royals were born in the posh Lindo Wing, while mine had to make do with the other commoners in the NHS ward). With the passing of the Queen, I think the most remarkable legacy of her reign is consistency – and investors should take notice.

The Queen was many things to many people but undeniably consistent to all. For 70 years, she held on to royal traditions and protocols in a world that changed dramatically around her. Amazingly, she never sat for a media interview, helping feed into her mystique. She has been rewarded with global recognition and a high approval rating for her consistency. And the UK, despite its current economic troubles, has nonetheless been a financial success story over the time of her reign.

Consistency pays off in investing as well. The biggest mistake we see investors make is to lose faith in their processes and protocols. The Queen was not without flaws, and neither will be your investing. But the best chance you have to succeed in the long run is to devise a sensible investment approach and stick with it. For us, that is at the heart of evidence-based investing. Following the evidence does not mean you will always outperform in every market, but it is designed to stack the odds in your favor for long-run outperformance. Consistency pays off.

.75%

The ECB joins the club

The European Central Bank joined The Fed in raising rates by 75 bps. Both are expected to raise another 75 bps at their next decision.

Headline of the Week

US Stocks rebounded nearly 4% this week, fully reversing last week’s continued negative reaction to the Fed Chairman’s speech at Jackson Hole. The ECB joined the “75 bps” club when they raised rates again this week. Both the Fed and ECB are signaling another 75 bps in their next move. But our headline of the week is the passing of Queen Elizabeth II.

  • Flags are at half staff in many corners of the world to honor the Queen.
  • A lot has changed in the 70 years of the Queen’s reign. The UK economy is about five times larger today, for example.
  • But some things are very similar. The UK faced inflation of over 11% back in 1952, in part due to the Korean War. Today, CPI inflation stands around 10%, in part due to the war in Ukraine.
  • It is the end of a truly remarkable era.

The Week Ahead

The inflation read will be the main event for investors at home. The UK was already supposed to dominate headlines before the passing of the Queen, as key data and a rate decision were on tap.

Inflation Situation

The Consumer Price Index (CPI) out Tuesday will be the marquee economic data next week. Last month’s 8.5% year-over-year jump was a relief from June’s 9.1% print, so another tick down will be great!

  • The Federal Reserve is in the quiet period ahead of a rate decision on the 21st, so the inflation report will serve as a proxy for the 50 or 75 drama.
  • Core CPI, which excludes food and energy, is still expected to tick higher by 0.4% from July.
  • Current expectations are for an 8.1% print for August.
  • The central bank has two more rate meetings in 2022, November and December. Without a meeting in October, the CPI reading would have to be significantly under 8% to take a 0.75% hike off the table.

Mourning Period

Originally the coming week was slated to be a big week for the United Kingdom’s economy. Not only has a new Prime Minister taken reigns, but there was an inflation print, a Gross Domestic Product release, and a rate decision from the Bank of England.

  • The Passing of the Queen instead has taken center stage and initiated the ten days of mourning.
  • The Bank of England has moved its meeting to later in September.
  • As of the time of writing, the economic releases are still as scheduled.
  • Expectations of a CPI inflation reading to come in with another double-digit print.
  • The Producer Price Index (PPI) is expected to be even higher at 13.95%.
  • The PPI measures price increases that producers/sellers of goods are facing as opposed to the CPI, which measures inflation consumers see.

Don’t forget about China!

The monthly dump of data from China will include retail sales and industrial production.

  • The world will be watching as another wave of lockdowns pops up.
  • Retail sales are expected to have increased in August; however, industrial production is expected to be flat.
  • There was also a major drought in August that caused parts of the Yangtze River to dry up and disrupt hydropower production, which will impact the numbers.

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