Welcome to the October 2020 edition of Leyland Lines.

The unusual paradigm in which markets have lived in the past 9 months continues unabated.

The normal drivers of individual company performance (predominantly profits) are being largely ignored by the market and replaced by companies with an exciting ‘story’. The macro direction of markets is driven largely by stimulus and low interest rates with very little regard to company earnings.

So great has been the shift, some commentators are prosecuting the case for a permanent change in investment techniques, and a replacement of traditional economic theories with the contemporary ‘Modern Monetary Theory’ or MMT.

Even more dangerous, is that the case is often accompanied with one of the most dangerous phrases in the investment landscape “this time it’s different”.

There have been periods in the past when many have believed “this time it’s different”. In every case the ‘different time’ turned out to be temporary, and earnings once again became the driver of wealth.

We believe history will once again prove “this time it’s different”, will turn out to be a temporary state.

With the market in flux, investor confusion reigns. We are seeing an uplift in M & A activity as sensible operators are using the low interest rate environment to take-over competitors whose shares are being mispriced by the market.

The upcoming election in the USA is adding more uncertainty to an already uncertain time.

As always, we encourage readers to keep a level head, try and avoid outrageous headlines and predictions and focus on earnings. If the company keeps growing earnings, the share price will eventually catch up.

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