All-weather investing

Seeking good positive returns.

Come rain or shine.

Ruffer provides investment management services for institutions, pension funds, charities, financial planners and individual investors.
Ruffer LLP
Select Location
UK
Europe
Australia
US
Asia
Middle East
Channel Islands
Rest of world
Type of Investor
Individual investors
Institutional
Charity
Family office
Financial planner
Individual investors
Institutional
Charity
Wholesale
Institutional
Institutional
Institutional
All investors
All investors
London
80 Victoria Street
London SW1E 5JL
Edinburgh
31 Charlotte Square
Edinburgh EH2 4ET
Paris
103 boulevard Haussmann
75008 Paris, France

What could possibly go wrong?

Evoking memories of the South Sea Bubble… both bad and good

The Green Line
Steve Russell
Investment Director

We all know that 2020 was an incredible, and terrible, year. The pandemic caused the worst recession for centuries, along with an appalling death toll and suffering. Meanwhile financial assets pushed ever upwards, surfing a wave of liquidity meant to counteract the impact of the pandemic.

This month’s chart shows that it was also a record year for share issuance, surpassing even the heady days of 1999-2000.

We could have anticipated share buy backs collapsing, as sales and profits vanished. Similarly companies needed to raise record levels of equity to survive the lockdowns.

But who would have predicted IPOs reaching a record level too? Most surprising of all was that SPACs (Special Purpose Acquisition Companies) made up $75bn of that record total, eclipsing the previous record of such issuance in 1999 by over five times.

What, you might ask, is a SPAC? It is a new company, coming to the market and issuing shares to acquire other companies. But without the wearisome requirement of actually saying what marvellous opportunities it has identified.

This is reminiscent of the 1720s South Sea Bubble, when a speculative boom saw investors throw their money at all manner of unlikely projects. Most of them, Isaac Newton included, lost fortunes.

The poster child for the South Sea Bubble was a company promoted ‘For carrying on an undertaking of great advantage, but no one to know what it is’. Almost the perfect description of the modern day SPAC. But today’s version has $75bn to play with. The 1720s original was more modest, and after receiving £2,000 from subscribers the promoter promptly emigrated.

What relevance does this all have for today? Confident that central banks will keep interest rates at or close to zero, investors assume that there is no risk to today’s sky-high tech valuations and are throwing money at profitless IPOs and secretive special purpose vehicles.

What could possibly go wrong? In a word: inflation.

The danger is that markets are focusing on the wrong discount rate. The promise of untold future profits should not be discounted back by interest rates, but by inflation. That is the true measure of the purchasing power of future cashflows, assuming they ever actually materialise. It is inflation, and more precisely the fear of future inflation, that could see the current IPO and SPAC mania join the South Sea Bubble as one of the greatest financial follies of all time.

However, instead of explaining what protections we hold at Ruffer against this – our views on inflation are hardly a secret – I will end with a happier story appropriate to current troubled times.

Not everyone lost their money in the South Sea Bubble. It so happens that one investor, a bookseller named Thomas Guy, sold out at the peak in 1720, quintupling his money. He made so much money that he established a new hospital in 1721: Guy’s Hospital in Southwark – where today’s heroes are fighting the pandemic. May we all be as lucky – and as generous.

2020 Q4 Investment Review
January 2021: A changing of the guard is also the way of the world – and on its way. We are preparing for a time when high taxes – on capital gains, wealth, and income – effectively constrain capital accumulation.
Read
The 60/40 portfolio
This has been the allocation of choice for traditional balanced portfolios and has served investors well for the past 50 years. Is this all about to change and should investors be looking for something different?
Read
The K is not OK
December 2020: The consensus is we are in a K shaped recovery - that means winners and losers. What impact will this have on the economy and will the vaccine change its course?
Read

Chart source: Citi, Dealogic

Past performance is not a guide to future performance. The value of investments and the income derived therefrom can decrease as well as increase and you may not get back the full amount originally invested. Ruffer performance is shown after deduction of all fees and management charges, and on the basis of income being reinvested. The value of overseas investments will be influenced by the rate of exchange.

The views expressed in this article are not intended as an offer or solicitation for the purchase or sale of any investment or financial instrument, including interests in any of Ruffer’s funds. The information contained in the article is fact based and does not constitute investment research, investment advice or a personal recommendation, and should not be used as the basis for any investment decision. This document does not take account of any potential investor’s investment objectives, particular needs or financial situation. This document reflects Ruffer’s opinions at the date of publication only, the opinions are subject to change without notice and Ruffer shall bear no responsibility for the opinions offered. Read the full disclaimer.

our thinking
Inflation: bad for portfolios, good for society?
As inflation has soared to its highest level for 40 years, financial markets have taken fright, with most bond and equity markets down significantly so far in 2022. In fact, the US is now officially in a bear market, and inflation pressures show few signs of fading – quite the contrary.
Swimming naked
July 2022: It is hard to overstate how far free and unlimited central bank liquidity has rewired the financial system. As central bankers extract themselves from the monetary rabbit hole they have burrowed their way into, the damage to traditional portfolios is likely to be considerable. This tightening of monetary policy is happening because inflation has returned – with a vengeance.
Ruffer round up – Q2 2022
July 2022: Investment Director Duncan MacInnes joins Rory McIvor for a review of the quarter, discussing the scale of wealth destruction across markets and how they see this rippling out into real world behaviour, and looking forward to what could be on the horizon and what that means for investors.
Audio icon
Investment Review
July 2022: Jonathan Ruffer explains why wage demands are the final element required to fuel the new inflationary epoch. This regime will be good for social mobility in the long run, with the workforce and innovators as the winners. But it might well be brutal for the investment community.
Audio icon
OUR THINKING
London
80 Victoria Street
London SW1E 5JL
Edinburgh
31 Charlotte Square
Edinburgh EH2 4ET
Paris
103 boulevard Haussmann
75008 Paris, France