Significant Interest

Thank You!

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I’m sorry that the last blog was a bit of a dry regulatory subject but hopefully you will find this one a little more useful. I’m going to explain what I will be monitoring over the balance of the summer months. I will start with a joke from the Edinburgh Fringe.

“Last year I had a great joke about inflation. But it’s hardly worth it now.”

Amos Gill

Significant Interest Rate Rises

So as expected the Bank of England (BoE) followed the Federal Reserve Bank of the US (FED) hiking interest rates by a further 0.25%.

• The next announcement by the BoE will not be until after their next meeting on 21st September, approximately 7 weeks from now, so hopefully a quieter few weeks for UK markets.
• The following announcement will be on 2nd November.
• With the final announcement on 14th December.
• The FED meetings are always a couple of days before the BoE.

So in both cases there are 3 further opportunities to deliver an unexpected market shock.

• It is widely thought that rates in the US have peaked at 5.5%
• It is also widely thought that there will be two more rises in the UK lifting our rate from 5.25% to a maximum of 5.75% by Christmas.
• Then it is a question of how long before central banks reduce interest rates, the US should be well ahead of the UK.
• The promise of reducing interest rates will bring improving markets.

Credit Downgrade

The US has just been downgraded by a credit agency called Fitch. The markets have been unimpressed with a responding drop of just 0.78% over the last 5 trading sessions. The downgrade was widely dismissed and hardly piqued their interest. However the reasoning of the downgrade you cannot argue with. There is certainly division which almost caused a default two months ago. The US needs to issue a further $1Trillion dollars of debt and in 2024 the POTUS could be an individual either with signs of dementia or an individual who could be in prison. It’s hardly a rosy outlook! Still let’s remember we invest in quality global companies who are just as aware of this outcome as we are.

Typical Seasonality

I have little expectation of a dramatic market rally currently. In fact we really need a typically flat to slightly increasing global stock market period to re-instil confidence in the natural flow of our investment universe. We have no control over the future, but the future feels considerably less scary if it looks like the past. Typically:

• Investors receive more growth in the winter months than they do in the summer months.
• We like to be fully invested by September/October expecting the markets to rise over the following 6 months.
• The summer months are normally quieter, with usually less than 1/4 of our annual returns delivered over the period.

Our main portfolio valuations bottomed, then started to rise in October 22, recouping around half of the value lost since our all-time highs of December 21. Since March our valuations have remained stable which is just about textbook. I’m watching out for any early deviations from the norm.

Panic Political Moves

Government policy seems to be increasingly driven by mainstream media induced unrest. Instead of setting out a medium term plan and delivering on that plan, government policy is set by reaction taken on the hoof to try to appease the populace, which has become increasingly stirred up and polarised.

There is talk of abolishing Inheritance Tax, forwarded by 50 Conservative MPs who realise they will not win re-election from their typical voters unless concessions are given. I am certain this won’t happen. There is talk that pension balances in drawdown, left when the member dies below age 75, will lose their tax free status. I am convinced this will happen.

I do believe there will be a significant tax change made (bribe) by the Conservatives at some point as we get ever closer to the next general election. They will take action due to certainty of losing the next general election. We are months away from this happening unless a suicidal snap election is declared early.

I don’t believe the markets are fearful of the impending change of UK Government, the outcome is already fully factored in. Sterling I guess would suffer, but we are already well positioned with global equities.

Global Warfare

Increasingly the West is realising that other past superpowers are continuing to fight an unconventional asymmetric war against us. The NATO v Russia conflict in Ukraine is the most visible sign of war, but the technology and data theft carried out on a national scale by China over decades has been ignored for what it is. UK educational institutions, research facilities and critical infrastructure in particular have been infiltrated by the Communist Party of China. We cannot overturn the position we find ourselves in overnight, neither are any measures taken now likely to crash markets imminently at anytime we could predict. We need to be aware and watch for any further sinister developments. These oppressive regimes are certainly not without a long term plan, unlike Western Governments.

In Conclusion

There are actions we can take that are within our sphere of influence and control. There are other threats and indeed opportunities that we are aware of, but we cannot influence those outcomes. We concentrate our efforts where we can take effective action.

I’ve deliberately not mentioned man induced climate change as a current threat, for fear of starting an argument. Nobody seems to want to hear an opposing view to their own tribal beliefs. But the climate neatly brings me to the weather. Enjoy the summer and I hope if you are having a holiday in the next couple of months then you each receive Goldilocks weather. Not too cold, not too hot and not too wet.

I’m hopeful that we do see typical flat markets to make our workload here a little lighter over the next 7 weeks. I need to get the garden back in control. I will be away on a huge bucket list holiday from October 19th. As you know it doesn’t matter where I am on this planet, the work and the data still finds me. From your comments it’s nice to know you value the whole team here at our office as you do any individual.

There will be more blogs over summer if events dictate, I’m hopeful they shouldn’t.