The Cambridge Weekly – 12th April 2021

Bond markets signal economic optimism

Following a strong first quarter for equity investors worldwide, the second quarter is off to a good start as well, with most global stock markets already up by a few percentage points. While the sense that stock markets are potentially getting ahead of themselves is nothing new, the renewed surge of large-cap US tech stocks is.

Since the emergence of effective vaccines last autumn, the stock market darlings of 2020 had become laggards, as investors turned their attention to companies capable of benefitting from a pandemic in retreat and our collective desire to make up for lost time. But beyond this cyclical recovery theme, there was also the observation that the rising yields which accompany expectations of better times ahead would also prove a headwind for businesses whose expected substantial growth in earnings lay further in the future. We wrote about this ‘discounted cash flow’ dynamic before, but it was not entirely clear whether rising yields or expected changes in consumer post-pandemic behaviours were the more decisive determinant for the relative valuations of growth/tech companies.

Stock markets firmly looking ahead – Q1 2021 review

In our private lives, the first few months of 2021 were much the same as 2020 – unfortunately. Britain, and indeed the world, suffered more COVID cases, more fatalities and, once again, tighter restrictions. For investors, though, it was a different story. Despite a global economy frozen in motion and the deepest recession ever recorded, stock markets did very well last year, with some major indices climbing to new
highs. That seeming disconnect has carried over to the first quarter of 2021 which has been kind to the owners of stocks worldwide.

Centrist Biden puts global taxation in his sights

In the long run-up to last year’s US election, Joe Biden was seen as the uninspiring compromise candidate. An old establishment Washington D.C. type, with decades of top-level political experience and firm centrist credentials. Now President, he fended off challenges from the left of the Democratic Party and gave observers a sense that the status quo was back after four chaotic years of Donald Trump. But, just a few
months in, those expectations look wide of the mark. Biden’s recovery act – pledging $1.9 trillion to see Americans through the pandemic – is a massive fiscal expenditure of historical dimensions. However, it can be rather easily justified with the gravity of the global crisis and hence labelled as being a ‘one-off’. However, the President’s latest plans for long-term infrastructure investment and tax reform, are something else entirely.

Cryptocurrencies: definitely cryptic, but not (yet) a currency?

Much of the article that follows was published back in January 2018, when crypto currencies like Bitcoin last hit ‘stratospheric’ levels and generated elation among pundits. Since then, the traded value of Bitcoin fell within a year from around $17,500 to $3,800 (a loss of 78%), only to have staged a comeback over the past 12 months, rising more than 15-fold to around $60,000. After mentioning cryptocurrencies in last week’s video update, we were asked whether we would consider ‘investing’ in cryptocurrencies in Cambridge’s investment portfolios. So, it feels appropriate to re-iterate what we stated during the last crypto hype on the subject matter, if only as a little refresher on what constitutes currencies – and investments.

Read the full commentary here