Season’s Greetings From Longbon & Company


I look back over 2023 with a sense of relief. We started the year with interest rates climbing precipitously; they were at 3.5% this time last year having, of course, risen from their low of 0.25% a year before. Because of stubbornly high inflation, interst rathes rose to a peak of 5.25% in August, and have remained at that level throughout the remainder of 2023.

My relief comes about becayse the all-to-frequent prediction of a certain recession in 2023 has come to nought – now we have inflation falling to a level below that expected and the realistic prospect of interest rate cuts in 2024. This has spelled a Santa rally in equities and, in general, portfolios have risen about 5% since the valuation point of 5 October.

A side note – of the last five recessions, economists have forecast nine – bad news sells!

Before we all start to uncork the champagne, let us just place our feet a little more firmly on the ground. The fifteen-year long era of cheap money has ended. Interest rates are unlikey to return to the level of the recent past. It is something that we all must get used to.

2024 could see a long overdue correction in valuations (both up and down) in certain areas of the stockmarket as investors seek more certain returns on their capital. This should benefit so-called value companies – those that generate cash – as in many cases their dividend yields are far greater than the rate of interest paid on deposits. Investors would receive a handsome dividend and the prospect for growth of capital from rising share prices.

Peak (and falling) interest rates also provide extraordinarily benign conditions for bond investors – this sector having suffered so much over the past 24 months.

Looking further ahead, the decarbonisation required to meet with the governments’ commitment is likely to require spending on a massive scale. All this spending should support jobs, wages and the real economy. And, unlike the previous capital cycle, which was largely funded through venture capital and private equity, it will be primarily finances by larger listed companies and governments and have a significantly broader impact for the real economy.

Higher interest rates have us all rushing to out loval building society et al to deposit our funds and receive meaningful interest. It is understandable, but not a policy that creates wealth. Reasons: 1) deposit rates are rarely higher than the rate of inflation, so the interest on cash, at best, just preserves purchasing power; and 2) over the longer term a mixed portfolio of bonds and equity will beat cash returns and inflation, thereby increasing the purchasing power of your money. It is interesting to note that over the course of 2023 every major equity sector provided a return greater than cash on deposit (source: FE Analytics). The only equity sectors to produce an inferior return, compared to cash, were the specialist sectors of UK Smaller Companies, China, Infrastructure, Healthcare, and Commodities (the last three having been darlings of the Covid era).

I am delighted to share with my readers that this firm was awarded the prestigious Money Marketing: ‘Best Investment Advice Firm’ for 2023. We are also honoured to have been included in Citywire New Model Adviser’s Top 100, a list of the leading advice firms from around the country, for the second time. These are in addition to the twelve other awards and nominations that we have received over the years.

May the team and I wish you all a Merry Christmas and a Happy New Year.

Andrew Longbon

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