War

But first a gentle reminder about the end of the tax year.

The end of the tax year is almost upon us, so as usual we are busy, busy, busy. If you need us to do anything for you before the year end, remember this is a short year as Easter takes some working days away from us. Once we get past the 6th April we will be topping up everyone’s ISAs who have General Accounts with us. If you don’t want this to happen, speak to Melissa urgently. The Cash in the General Accounts is waiting and we don’t want to miss one minute of the income tax and capital gains tax growth.

Don’t just do something. Sit there!

I mentioned how busy we are because this blog won’t be my usual long prose. Just some bullet points I’m afraid as time is tight.

I’m not a war correspondent. I have no military background. So I’m not qualified to make sense of the last month. I do know that so far I’ve only seen unbalanced and biased coverage based on the narrative the particular media organisation is pushing. The reporting is unhelpful to those of us who want the real story in order to make solid investment decisions. Details are sparse, we knew that the US and Israel had launched an attack at the same time our Prime Minister found out. The Government of the UK can no longer be trusted militarily – so much for the special relationship. Therefore anything the UK Government tells you isn’t new news. They probably read it on X (formerly Twitter).

My Credentials

I’m well versed in parsing biased media, researching polarised narratives, along with some truly insightful financial commentators views. I’m looking for truth not spin. I even check what the Guardian has to say occasionally to get some left wing balance to the other sources I’m reading which are more to the centre politically.

I’m not here to try to change anyone’s personal opinion on either politics or war. I have one job – to grow our savings when I can and preserve them when I can’t.

The actions we have taken since the start of the year have thankfully helped our investment portfolios enormously. We began slowly at first, and then very quickly at the end of February, we reduced our investment holdings to an extreme minimum level. A level of cash we have never held before.

• Together we hold £55,000,000 in cash, which has turned out to be the only true safe haven over the last month.
• Our individual equities are mostly US companies, denominated in dollars. Sterling has lost 2% of its value versus the dollar, which has been a tailwind for the US equities we still hold.
• We still hold Physical Gold which should have held its own as the price of oil rose. So far we have yet to see its safe haven qualities.
• We hold no fixed interest investments which should rise in value as equities experience a pullback. However as usual when the smoothing action that fixed interest investments should give to a portfolio are required, they have gone AWOL again. It’s many years since I’ve seen the benefit of holding fixed interest investments, known as gilts and bonds. Probably decades ago now.
• Approximately 50% of our savings and growth have been temporarily safeguarded in cash, generating 3.68% per annum, until things inevitably quieten down.

Here’s a few of our deductions that led us to this current position.

Energy is key. Available on demand energy, not the type favoured by Ed Miliband that only contributes when the sun shines and the wind blows. Oil, gas, nuclear, hydro keep the UK’s lights on. We need the French to continually send us some of their electricity generated in the main from nuclear power. What could possibly go wrong with that arrangement?

The US is self-sufficient in oil, if the Straits of Hormuz are not reopened soon Europe and China are the first to suffer. Pressure is heaped on China if exports from Iran are stopped from Kharg Island.

China is a net importer of oil and gas – mainly from sanctioned states, as the price is lower. Think Russia, Venezuela and Iran. The recent US military action is a proxy war against China.

China is already planning for war, strategically stockpiling the commodities it needs to survive for a period without imports. China is also starving the world of the commodities they need to be able to fight back in any modern conflict. Think rare earths, with large deposits in both Venezuela and Greenland. China processes and controls 95% of rare earths globally. It fought back against Trump’s tariffs with an export ban on rare earths. Rare earths are needed everywhere in electronics. Phones to cars to satellites to missiles. They are that important strategically.

Chinese and Russian designed and manufactured weapons thankfully were little match for American forces in Venezuela and now Iran. Obviously Israeli intelligence, weapons and their will to continue with a fight that is existential for them, has devastated Iran”s command and control.

Trump hardly sneaks up on countries, so military action is never a surprise. His election manifesto declared his intent, US military strategists had long ago joined the China, Russia, N Korea and Iran dots together. Trump simply gives the go ahead to try to retain the balance China and its axis has been eroding for over 20 years.

The real military action always happens over the weekends when stock markets are closed. It’s a long known pattern that led to our equity sales on the Thursday before the Saturday attack on Iran. Since then markets have been gently rising early in the week and falling towards each weekend as investors generally prefer safety over the weekend

Iran declared war on the West in 1979. “Death to America” “Global Jihad”. The regime has been behind embassy and military personnel bombings for over 45 years. They provide the money behind proxy groups which fight against the West. It is stretching the imagination to call this an unprovoked attack on a sovereign nation.

Unfortunately we believe the UK will fall into recession by the third quarter of this year, as we are a price-taker of our energy requirements. 40% of our electricity is still generated from gas which we are forced to buy internationally as we have none of our own. We have approximately 2 days supply. at any one time. If Trump had started this military action in November, the UK would have been experiencing power cuts by now. Every service provider and manufacturer will see energy import costs rise. The response will be a rise in prices leading to higher inflation and a possible rise, not fall, in short term interest rates. There is no reason to try to fix the exogenous shock by increasing interest rates which will have no effect on the price of oil and gas, but pressure will be heaped on the Bank of England to do something. Anything. Employers will make cuts in workforces to try to keep businesses going. This leads to higher unemployment than the high levels we are currently suffering. Where are the new green jobs we were promised Ed?

I apologise that none of the above is good news except the part where we took decisive action early. A client last week commented that she had logged in and her valuation was “horrendous!” I reminded her that it wasn’t. As investors we have to take the rough with the smooth and we cannot expect valuations to always be at an all time high. We are still ahead of where we were 60 days ago. Far ahead of those individuals whose advisers always suggest do nothing, it will be OK in the end.

I’ll blog again in the new tax year with a fuller appraisal and where things will start to hopefully get better. Pressure is on both sides to claim victory so far and back down. China has been shown it cannot have it all its own way in the future. This should be a wake up call for UK energy policy. Let’s hope.