BIO: Michael Howell is CEO of CrossBorder Capital, a London-based FCA-registered, independent research and investment company he founded in 1996.

STORY: Michael was once in a meeting with the governor of the Bank of Thailand, who told him they would cut interest rates the following week. Even though all possible data showed this would be a wrong move, Micahel believed him. The bank didn’t lower the rates; instead, it increased them.

LEARNING: Don’t listen to what people say, particularly central bankers; watch what they do. When participating in macro investing, understand where you are on the liquidity cycle and where investors are positioned.

“Don’t buy a market with a low PE because you think it’s cheap. It actually tells you a lot more about the liquidity background or about the investors’ positioning, which may be structural features of the markets.”

Michael Howell

Guest profile

Michael Howell is CEO of CrossBorder Capital, a London-based FCA-registered, independent research and investment company that he founded in 1996. The firm provides asset allocation and capital markets advice to institutional investors and manages US$1 billion of assets.

Worst investment ever

In the mid-1990s, when Michael was working at ING Barings, there was evidence of some economies beginning to overheat. Michael had a lot of discussions with central bankers, and one of those meetings in early 1995 was with the governor of the Bank of Thailand. Michael remembers the governor saying that the bank would cut interest rates. Michael assumed that the governor wanted to inform people, so it’s not a shock that interest rates will be cut.

In context, that was a crazy decision to make because Thailand was already overheating. The Chinese had previously overvalued the renminbi by about 30%, and the Japanese yen was beginning to strengthen significantly.

The governor wasn’t honest because the Bank of Thailand raised interest rates instead of cutting them. This taught Michael never to listen to what central bankers are saying. Instead, he now looks at the numbers and the underlying backdrop.

Lessons learned

When participating in macro investing, understand where you are on the liquidity cycle and where investors are positioned.
Equity markets are best valued against inflation, not against bonds.
From a global perspective, liquidity will likely be the primary driver of asset markets.
Big currency appreciations destroy earnings, and currency devaluations boost earnings.
PE multiples work very well at the individual stock level but certainly don’t work at the macro level.

Andrew’s takeaways

Don’t listen to what people say, particularly central bankers; watch what they do.
PE multiples are not a great measure when looking at the overall macro picture.

No.1 goal for the next 12 months

Michael’s number one goal for the next 12 months is to get more people to understand that liquidity is the key thing going forward.

Parting words

“Just watch the markets and understand what’s going on. Look at the data. Don’t read the central bankers’ lips; watch their hands.”

Michael Howell

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Further reading mentioned

Benjamin Graham (September 2008) Security Analysis: Sixth Edition, Foreword by Warren Buffett (Security Analysis Prior Editions)

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