Low-cost share dealing
Now that Freetrade is about to start another funding round, it’s possible to forget that there’s another pioneer in the field of low or zero cost share dealing: DeGiro. They are much closer to the more ‘traditional’ old-world broker model than Freetrade, and offer a much wider range of products including options and futures. Up till now they’ve suffered from two headwinds; they aren’t actually offering free trades for main markets, and they also lack a tax wrapper structure for their investments.
That first headwind is being addressed though. Today brought news that DeGiro from next week will be offering commission-free trading on all large US & Canadian stock exchanges, such as the New York Stock Exchange, NASDAQ and Toronto Stock Exchange. For the London market, they’ve taken away their variable percentage fee model and replaced it with a flat fee commission: GBP 1.75 and EUR 2 for ETFs. None of this changes their existing offering of zero-fee trading for a core selection of 200 global ETFs for zero fees.
Unfortunately, DeGiro still doesn’t offer a SIPP or an ISA, which is I think a major mistake in the UK market. Let’s hope that changes soon, though I wouldn’t hold your breath!
A Twitter stock index
Major index firm Dow Jones has finally given in to the world of social media and meme stocks and launched a S&P 500 Twitter Sentiment Index Series. According to the index firm “the new indices use a sentiment scoring model to analyse the financial conversation taking place on Twitter and measure the performance of S&P 500 constituents with the highest sentiment scores. At launch, the S&P 500 Twitter Sentiment Index Series includes:
- S&P 500 Twitter Sentiment Index. Measures the performance of 200 S&P 500 constituents with the highest sentiment scores. Index constituents are float-adjusted market capitalization (FMC) weighted, subject to a single constituent weight cap of 10%.
- S&P 500 Twitter Sentiment Select Equal Weight Index. The index measures the equal-weighted performance of 50 S&P 500 constituents with the highest sentiment scores.”
You can find out more about these new indices HERE
For the record, the Twitter Sentiment index recorded a 2019 gain of 30%, and 24% in 2020. And the top ten holdings? They look remarkably unglamorous, un-meme like: Amazon, Alphabet, Nvidia, Berkshire Hathaway, UnitedHealth, Johnson and Johnson, Home Depot, Visa Inc, and Procter and Gamble.
China’s big readjustment slows down
The latest China Global Source Partners newsletter from Michael Pettis is out. Its main focus is on much-anticipated data release by the National Bureau of Statistics which “was not as bad as many expected”. The most interesting insight for me at least is this section:
“The good news is that today’s data release shows that the Chinese economy is continuing its slow rebalancing towards consumption, as it has been doing in the past few months. The bad news is that it is doing so much too slowly to make up for the deep worsening of the imbalance that occurred last year. Our best proxy for consumption is retail sales, which in October was 4.9 percent higher than retail sales in the same month in 2020, or 0.43 percent higher than in September (nearly 5.3 percent annualized). This was better than expected, but still low….October’s monthly trade surplus was the highest China has ever recorded. In the first ten months of 2021, exports were up 22.5% percent year on year while imports were up 21.8%, to generate a trade surplus of roughly 3.6% of GDP”.
Personally, I think this huge trade deficit slightly undermines the newly dominant deglobalisation narrative. China is still the dominant export powerhouse and nothing seems to be changing.
Is the Aging Society deflationary or inflationary?
There’s a fascinating debate lurking around whether an aging society is deflationary or inflationary. I think I am still in the deflationary camp but Charles Goodhart has been articulating a very cogent case for the opposition. The over arching argument is in his new book, HERE but this section below from blog puts it very well:
“ The great demographic reversal and the retreat from globalisation will bring back stronger inflationary pressures – this is our highest conviction view. Worsening dependency ratios naturally raise inflation. The lesser availability of labour at home and abroad will serve to restore the (previously diminished) bargaining power of labour. It will also end up raising the equilibrium natural rate of unemployment. Households will save less, and invest more in housing, than some mainstream models suggest. The non-financial corporate sector may have to invest more to hold down unit labour costs, though we are agnostic about the various causes for recent low investment rates. But we doubt that politicians, facing rising health and pension costs, will be prepared or able to raise taxes enough to equilibrate the economy via fiscal policy.”
In the deflationary camp is another economist: Eric Basmajian. In his blog he makes the following argument:
- All major economies are suffering from aging demographics.
- An economy gets a boost from the 25-54-year-old age cohort and suffers a drag from the 65+-year-old age cohort.
- Older populations are correlated to lower real growth and lower inflation.
- With major economies already stuck at the zero-bound, fiscal and monetary authorities will have to contemplate negative interest rates or continued debt-financed fiscal spending.
- Both options will not reverse economic gravity and erode the standard of living over time.
The two charts below nicely sum up his argument.
The first suggests that the deflationary pulse will have dragged real growth back to zero.
If you thought the US has a problem, think again. The chart below shows Japan’s astonishing growth in those over 65 years. Note the convergence of China.