I have been a reporter and editor covering markets for the FT since 2006 in New York and London and now write the daily Market Forces newsletter. What I enjoy the most about markets is when we see big divergences in views between what prices reflect and the views of economists and policy makers.

As we begin 2019 in earnest, it’s certainly a fascinating time covering markets. There is a real tug of war playing out at the moment between equities and government bonds, which I wrote about via the Long View column on Saturday.

After a brutal 2018 for many markets, investors face a stern test of their convictions. Are equity prices now cheap enough to warrant buying? Or is the gloomy market message coming out of the government bond market on the money?

Already this year, we have seen a robust US employment report and heard from the Federal Reserve that they will take a patient approach in terms of tightening policy further. While this may help ease investor anxiety, the challenges remain formidable as we still have the unknown outcome of Sino-US trade sparring, China’s clearly slowing economy - which has knocked Japan, Europe and much of of the emerging market sector - while Brexit and Italy loom large for the Eurozone.

Proof: https://i.redd.it/clg0bg1tk8921.jpg

Comments: 451 • Responses: 19  • Date: 

sailingtundra182 karma

What do you see as the long term repercussions of continued outflows from active management to passive instruments like ETFs?

How will markets function if fewer and fewer participants are actively picking stocks rather desiring a cross-sectional slice of the whole pie? If less people are buying/selling the underlying securities how would markets continue to price value into equities?

financialtimes144 karma

There are limits to passive and we will see a shift back towards active styles. A lot of the passive boom reflects low returns over the past twenty years, so there has been a big focus on costs. The bigger story for long term investors is that we need to see more younger companies listing and providing investors with an opportunity to hitch a good ride, aka buying Microsoft in 1986 or Amazon in 97.

MAGA_2069137 karma

How does it feel to work in a Newspaper and have an alliterated name, but not be part of the Spider-Man universe?

financialtimes103 karma

Ok, best question of the day! I would rather be super man as flying without the aid of a web sounds a lot more fun.

Fantom199267 karma

What are your thoughts on bitcoin and the evolving cryptocurrency market in general this year?

financialtimes106 karma

I'm in the skeptical camp and my colleagues at Alphaville have done a very good job of puncturing the hype.

Influence_X44 karma

How great is the wealth divide in America?

financialtimes132 karma

Substantial and based on my recent time in the US with friends and family, the affordability of healthcare is a massive issue . It is interesting to see the debate over higher marginal tax rates gaining traction.

ksox0744 karma

With the inversion of the yield curve do you predict a possible recession this year or maybe next year?

financialtimes102 karma

Hi, a yield curve inversion is an early warning signal. The curve inverted in 2006. well ahead of the 2008 crisis. SO we are looking at 2020/2021 for the next recession by that metric.

cordialsavage29 karma

Were/are people too complacent on the risk that a slowdown or debt collapse in China could have on markets and the global economy? Is their huge debt really a concern or will the government be able to stave off a crisis?

financialtimes50 karma

One book to read on China is Red Flags by George Magnus. He knows China very well and frames the challenges they face. Big debt mainly backed by a central authority is manageable. In fact the big trade now is buying Chinese government debt as the economy slows.

financialtimes23 karma

Thanks for all the interesting questions. I'm back on deadline so have to hop. All the best and thanks for reading Market Forces.

Bluest_waters20 karma

thoughts on lack of dreadlocks on Saints cornerbacks these days?

financialtimes12 karma

I'm a Pats fan.

Xuval20 karma

Why should I read your newsletter, instead of just investing into a general market ETF and let my money stay there until I retire?

financialtimes31 karma

Well I hope the newsletter helps inform you about what is happening in markets. You can forget your money, but I would argue a key part of investing is rotation. You could stay in UK small caps for example when EM or US are a better long term bet.

grexior14 karma

What are your thoughts on the northern passage becoming a thing due to global warming? How would that affect the markets?

financialtimes19 karma

Boosting global trade is positive for risk assets as we have seen earlier today as trade talks between the US and China concluded.

M4rtingale12 karma

Soft data is pointing lower for developed markets, yet by some economists' metrics (while others might disagree) the ECB is still running a loose monetary policy. Is the EU heading towards a Japan-style lost decade? What is your base-case scenario for the European Union going forward (on the inflation-growth matrix)?

financialtimes15 karma

They need to clean up the banks. You need a healthy banking system to get the economy growing. But what we have seen of late is the dependence of Europe on China and exports. Europe tells you that China is slowing and after QE they still have a banking system that needs fixing. Not a good look.

SacredWeapon11 karma

Federal reserve QT removes ~50B/mo of liqudity from financial markets by introducing new treasuries for trade as an alternative buying option. Technical analysts are calling it catastrophic; certainly QE was a driver of post-2008 rallies.

How significant is that liquidity removal really, in context of total monthly volume on major indices like the S&P500?

financialtimes12 karma

US QT is more a global story given the large amount of dollar debt around the world. QE encouraged a weaker dollar and a boom in dollar bond sales in EM. That was the pressure point last year and why for much of 2018, the S&P 500 outperformed global equities, until the music stopped in October.

AlexHimself9 karma

What would you recommend a layperson investor who has a bunch of money sitting in various individual stocks (amazon, google, etc) do right now?

It doesn't feel like the market is about to go up with the current political climate.

financialtimes18 karma

Hold tight. They are good companies and generate hefty cashflows. If the US economy slows as forecast, fast growing companies are the best thing to own. From here, I would look at younger companies, ala what is the next Google or Amazon. That's a tough gig as many new tech companies are staying private.

M4rtingale8 karma

The US has fared much better than the EU in terms of economic and inflationary performance after the great financial crisis. Do you think a splitting up of the Euro into 2 or more monetary unions would help Europe?

financialtimes19 karma

Clean up the banking system and unify in terms of spending. Germany stands in the way of that.

lankyteabags7 karma

I was curious as to your opinion on the future of finance, and especially the banking system with regards to new technologies and new laws. What do you think will change in response to all those new TechFin companies? And new technologies such as blockchain that might really shake up this system? What will banking and finance look like?

financialtimes13 karma

banks face a fight but they have one trump card. Your money at a bank is federally insured in the US.

yijing15127 karma

Hi Mike, avid reader of your column and have to say you're filling John's shoes very well. How much do you think a recession will be prolonged by due to interest rates already being so low? Also, could you explain - pretend I'm a layperson - how the pensions crisis might roil global financial markets?

financialtimes6 karma

Low rates may well prevent a deep slowdown as they reflect easier financial conditions. The pension story is a slow burn, so not sure that really roils markets.

M4rtingale5 karma

What do you see as the main risks for EM as an asset class?

financialtimes15 karma

In a word, China. It defines EM and the economy is slowing more than the official figs suggest. I'm also a little worried about the consensus call for buying EM this year. This time last year that as a big call too.

HailLordXenu3 karma

Hi Mike. I’m an avid reader, keep up the good work.

  1. Did you have any hesitations taking over from John Authers?

  2. Any favourite columnist or investment related blog we should all be following?

financialtimes6 karma

John hired me to join the FT many years ago and was a tremendous mentor. So, yes I was stepping into big footprints. But it is exciting and Mr Market has been very helpful as there's no shortage of things to write about.

The blog links on Real Clear Markets are a good place to check daily. James Mackintosh, Paul Davies and Jason Zweig at the WSJ are always worth reading. And of course John at Bloomberg is a must read!