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  • Market Musings - July 2019

    "Whoever fights monsters should see to it that he does not in the process become a monster." Friedrich Nietzsche, 1844-1900

  • Market Musings - April 2019

    "When in doubt, do no harm." Hippocrates, 460-370BC

  • Market Musings - January 2019

    The big elephant in the room is the trade spat between the United States and China, as its impact spreads around the global economy. Is it just a spat? Napoleon Bonaparte (1769-1821) is reported to have said: “Let China sleep. When she wakes, she will shake the world.” The world has never seen anything like the rapid, tectonic shift in the global balance of power created by the rise of China. The US share of global economic output was 22% in 1980, but three decades of double digit growth in China reduced that to 16% in 2016. In contrast, China’s share soared from 2% in 1980 to 18% in 2016 – and could reach 30% in 2040 if current trends continue. When a rising power (China) threatens to displace a ruling power (the USA), the resulting structural stress makes a violent clash the rule, not the exception. For seven decades since World War II, a rules-based framework led by Washington has defined the world order. Now an increasingly powerful China is challenging this. China feels it has been cheated out of its rightful place by nations that were strong when it was weak. The two Opium wars led to ceding Hong Kong to the British and the French burning the Summer Palace in Beijing to the ground. In the Boxer Rebellion (1899-1901), imperial powers looted China’s cities. Some of the stolen art and porcelain is rumoured still to be held by the Metropolitan Museum in New York today, a festering wound. Every high school student in China learns to feel the shame of this century of humiliation. “Never forget – and never again!” they are taught. Click the link to read more…

  • Market Musings - October 2018

    The U.S. economy is experiencing a sugar rush, turbo-charged by tax cuts, increased government spending, de-regulation and accommodating monetary policy. Add in a rising oil price and trade tariffs, and core inflation has (at last!) reached the Federal Reserve’s target of 2% p.a., supporting another hike in the Fed Funds rate and nudging it into positive real territory for the first time since the credit crisis. The wage-suppressing effects of globalisation and technology-driven deflation have substantially impaired workers’ bargaining power – and contributed significantly to keeping inflation in check. The Fed has consequently been able to leave interest rates low and worry about asset bubbles later. However, in the run up to the last two recessions, destabilising excesses appeared not in inflation but in financial markets. An appreciation is emerging that the old inflation-targeting framework of central banks is no longer fit for purpose. Tightening monetary policy is not the only chill in the air. Trump has now imposed tariffs on $250 billion of imports from China. He has three objectives. First is the ballooning trade deficit. However, businesses are responding by shifting production to neighbouring countries such as Vietnam, not by returning jobs to the US! The bigger issue though, is the extent to which the two countries’ national security interests are intertwined, which is clearly undesirable. Thirdly, China is going head-to-head with the US in advanced manufacturing and digital technologies. It is a battle for digital supremacy and global influence. It won’t be over by Christmas. Click the link to read more…

  • Market Musings - July 2018

    “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness.” Charles Dickens, A Tale of Two Cities, 1859 President Xi Jinping of China has an ambitious master plan for his country’s transformation into a wealthy, technology driven, global economic power. U.S. companies need not apply… Xi, with lifetime tenure, is playing the long game. In pursuing the “Chinese Dream” and targeting a doubling in per capita GDP between 2010 and 2021, he is re-fashioning China into a tech powerhouse, competitive in robotics, new energy vehicles, chips, software and artificial intelligence. He sees it both as a necessary response to surging labour costs, a rapidly ageing population and high corporate debt levels – as well as a fulfilment of China’s destiny. China is now going head-to-head with the U.S. in advanced manufacturing and digital technologies. Trade talks have in essence stalled over U.S. demands that China reduce state support for high tech industries. While China has signalled a willingness to buy more American goods to balance out the trade deficit, President Xi is refusing to trade away what he sees as an essential part of his country’s future. Tariffs may inflict much economic damage and depress global trade, but this trade war is far more than just a spat over intellectual property rights and the epic U.S. deficit. It is a battle for global influence, an escalating rivalry between a status quo power and a remarkable growth story. The contest is just beginning.

  • Market Musings - April 2018

    In the 1950s and 60s a major Western power set itself the objective of surpassing the Soviet Union in space and weapons systems. Government investment was poured into education, research and engineering. Infused by a spirit of enquiry, competition and a capitalist incentive to make money, and supercharged by an immigration system that welcomed promising minds from every corner of the planet, the programme proved hugely successful. The country was the United States and the programme ultimately gave rise to Silicon Valley. Now of course the tables are turned. China has identified ten strategic high tech sectors which Beijing is targeting in its “Made in China 2025” plan, sectors into which the government is pouring research & development because this is where they see the jobs of the future. In his quest to bring jobs back to the United States, President Trump has ascertained that the biggest contributor to the growth in the ballooning trade deficit last year was capital goods imports - computers, industrial machines, telecoms and semiconductors - and particularly from China. Indeed, China is taking centre stage in 5G, the next generation wireless technology, as this moves from the drawing board to the real world. Online dominance is a massive strategic asset. China’s role in cyber space is a growing national security threat, while ceding the internet market to Chinese companies beholden to the Communist regime is to consent to government censorship and content controls. The spat with China is far more about digital supremacy than it is about trade. Read on…

  • Market Musings January 2018

    Market Musings The sun is shining on the global economy. The OECD is forecasting global growth of 3.8% in 2018, ahead of 2017’s 3.7%. China and India are setting the pace; the only country whose growth will be slow this year is the UK. The U.S. economy added circa 2.1 million jobs in 2017, the longest stretch of job creation on record. The Eurozone has been galvanised by Monsieur Macron’s election as French President last May and his subsequent reforms. Germany’s booming economy has produced a fiscal surplus and the country’s debt clock in Berlin has had to be re-programmed to tick down to reflect for the first time a decline in the country’s public debt! In Japan, factories have come to life again, aided by the ¥en’s depreciation and a leap in competitiveness due to investment in innovative technologies to boost productivity. President Xi’s determination to turn China into a tech powerhouse is proceeding apace. Rebounding cyclical growth has dispelled concerns over secular stagnation, but economists nonetheless fret over static productivity, ageing populations and sluggish investment. However, there are strong reasons to believe these fears are over-blown – because the ‘new economy’ is being inadequately measured. Increasingly, ‘new economy’ investment is in intangibles but accounting convention dictates that these items are expensed, not capitalised. If properly measured, developed economies would have reported a stronger recovery in investment than official indicators suggest while the capacity of the economy to grow without generating inflationary pressures is higher than believed. Read on…

  • Market Musings October 2017

    The light is slowly dawning at the U.S. Federal Reserve (“the Fed”). Janet Yellen, Fed Chairperson, speaking on 29th September, conceded that the Fed “may have misjudged… the fundamental forces driving inflation”. She had previously espoused traditional economic theory that once unemployment falls below a certain level, wages - and inflation - will accelerate. However, pay levels and core inflation have remained muted despite strong employment, reflecting the disruption of technology and retiring baby boomers being replaced by younger workers on more modest wages. “Inflation could turn out to be noticeably different (to the targeted 2%)” said Yellen - but the risks in persistently easy monetary policy warrant further gradual increases in interest rates. The disruption of technology goes further than the Fed’s economic models. It is bringing a pace of change that, together with globalisation, is not matched in societal structures but has huge implications for jobs and skill sets. This mismatch is at the centre of much of the turmoil in society and hence politics. The one country whose government does however seem to be getting the governance of change right is China. The Fed’s econometric models might be in disarray, but the global economy continues to grow steadily. This Goldilocks background of growth with muted inflation is feeding through to equity markets, where earnings per share are being lifted for all regions. Should investors fret that the world’s major central banks are declaring last orders on the quantitative easing punchbowl? Read on…

  • Market Musings - July 2017

    “You can dance in a hurricane, but only if you’re standing in the eye.” Song by Brandi Carlile. Artificial intelligence, whereby computers ingest vast quantities of unstructured data at far greater speeds than humans, then - using algorithms - make sense of the data and deduce which answer has the highest probability of being correct, has the potential to re-shape virtually every man-made system that society is built on. For example, IBM’s cognitive computer ‘Watson’, has scanned millions of pages of medical research and patient records, and is now able rapidly to identify tumorous cells – and the drug to which that cancer would respond best. Buoyed by the tsunami of innovation, the global economy continues to grow apace. Central bankers are increasingly ready to set sail for the forgotten port of Policy Normalisation. The only thing missing is inflation, with wage growth stagnating despite the fall in the unemployment rate: inter alia, a number of prices are under pressure as a result of the tectonic shifts in technology and retiring baby boomers are being replaced by younger workers on more modest wages. Central bankers need nonetheless to aim for more normal interest rates to rein in disturbing economic distortions. The disruptions arising out of technology are rather like a hurricane… but to be embraced by investors, not avoided. Our themes are the eye of the storm, if you will, that provide the opportunity to dance, as per our opening quote. Read on…

  • Market Musings - April 2017

    Climatologists have determined that our planet goes through weather cycles that affect human behaviour, both long and short term. Warm phases have generally witnessed prosperity and peace; cold phase cycles are typified by challenges to the prevailing order. Global warming indicates we are in a warm phase now… and indeed, the global economy is dutifully progressing steadily. While policy remains accommodative globally, trends in individual countries are divergent. In the United States for example, manufacturing is expanding and the unemployment rate has dropped to 4.5%. The Federal Reserve is slowly removing monetary accommodation. In contrast in Japan, monetary stimulus is having limited success. Wages remain muted, partly due to government support of labour-saving technologies. The looming shortage of carers for the ageing population will be met by humanoid robots rather than immigrants. GDP growth in China has virtually halved to ‘only’ 6.7% in 2016, prompting Beijing to supplement domestic consumption with fixed investment - but the country still accounts for over 40% of global growth. A ‘two speed’ €urozone is a clear challenge to the €CB’s accommodative policies. The region’s jobless rate stood at 9.5% in February - but in Germany it was down to 5.8%. Thus overall the world is steadily leaving the financial crisis behind, buoyed by technical innovation and benign inflation. If the climatologists are right, this warm phase will last a few years yet... How are we at Veritas investing against this backdrop? Read on to find out more…

  • Market Musings - January 2017

    Despite political headwinds, the €urozone economy continued its recovery in 2016, even recording higher aggregate growth than either the US or Japan! Indeed, the Federal Reserve is grappling with a new problem, the possibility of growth running faster than they had anticipated… And the US economy may be even more robust than official figures indicate – due to inadequate recognition of the impact of technology and the shift from manufacturing to services. Into this benign ‘Goldilocks’ setting, Donald Trump is charging with his ‘America first’ policies and wanting to unleash huge monetary and fiscal stimulus. The question is whether Trumponomics induces over-heating. Inflation is already ticking up cyclically around the world, and fresh stimulus in the United States could most certainly result in over-heating. Trump may however be let off the hook by secular forces that are pulling in the opposite direction. Technology is driving costs down in many industries, enabling companies to absorb input cost increases. A pivotal question for investors at present is the extent to which emerging cyclical inflation will be dissipated by secular disinflation. China is watching the new Administration with interest, ready to take advantage of the changing landscape. Beijing is offering to step into American shoes on the global stage on trade, on climate change…

  • Market Musings - October 2016

    Bond issuance is running at its fastest pace in nearly a decade as governments and companies binge on low and negative interest rates - but there is increasing push-back. The pensions and insurance industries are particularly hard hit: when bond yields fall, the cost of their promises to pay certain sums in the future rises. The world is running out of patience with central bankers: seven years after the credit crisis, their policies still have not achieved their goal of inflation at 2% and the side effects are extremely damaging. Talk of tapering is starting to be heard, both in the US and the €urozone. Monetary stimulus has helped boost asset prices since the credit crisis. The withdrawal of this tailwind, coming on top of the headwinds of an ageing, over-indebted world, will make the backdrop more challenging for investors. At Veritas this is however not deterring us in our quest for real returns for our clients, ahead of inflation. Increasingly we are focused on the impact from digital disruption. Technology has changed the way we live, and the pace of change is accelerating. The key disruptive technologies are mobility, social media, cloud computing and data analytics. How CEOs respond to the challenges and the need to innovate is critical for an investor to assess. Read on to find out more about our current investment thinking.

  • Market Musings - July 2016

    After a five-year journey, NASA’s Juno spacecraft has achieved orbit around Jupiter. Juno’s venture into the unknown is typical of other more terrestrial adventures at present. For example, did you realise that money is being created out of thin air? In embarking on “quantitative easing” post the credit crisis to jump-start an over-indebted, ageing global economy, central banks with just a keyboard click create money that they use to buy trillions of dollars of bonds and now equities. The Swiss National Bank has disclosed that it owns shares in 2,600 American companies. At Veritas however, in our quest for real returns for our clients, ahead of inflation, we focus on long term wealth creation by companies. We continue to marvel at accelerating innovation in technology, producing exciting progress in transportation, energy and healthcare. Read on to find out more about our current investment thinking.

  • Market Musings - April 2016

    Forward? Backwards? Sideways? Which way is the global economy travelling? The US seems on track for a moderate recovery in GDP and core inflation is accelerating. In contrast the €urozone and Japanese economies remain muted and their central banks are discovering that negative interest rate policies are not the solution to too much debt. This divergence is compounded by changing demographics. As populations age, there are now fewer wealth creators supporting the growing baby boomer retirement population. Lower growth is the new norm. Investors therefore face a challenging backdrop. Tectonic shifts are underway in the global economy as a result of technological innovation and ageing populations, exacerbated by prolonged monetary policy experimentation. Market volatility is inevitable. At Veritas we remain alert to the currents swirling around us. In our quest for real returns on a rolling five year view, our focus on established businesses run by proven management, financially sound companies with strong cash flows, a moat against competitors and the tailwind of a global growth, all at a sensible price, is particularly apposite in this climate. Find out more in our latest edition of Market Musings.

  • Market Musings - January 2016

    The world is in transition. The drivers of growth of the last three decades are fading. Baby boomers are retiring, emerging markets are slowing, the debt super-cycle has run its course. Growth is instead swivelling back to the developed world and from manufacturing to the service sector, led by technological developments and innovation. Transitions are rarely smooth and the tectonic shifts have understandably caused market volatility. This has been exacerbated by full valuations after six years of strong price rises. At Veritas we do not forecast markets; few do it well consistently. In our quest for real returns for our clients on a rolling five year view, we join Teddy Roosevelt in “looking to the stars” to identify global growth themes – and are excited by what we see. The wave of transformative innovation is self-reinforcing, spreading through economies and impacting corporate earnings, boosting margins at companies benefiting from innovation. Read our latest issue of Market Musings to see where our thinking has led us and how we continue to focus on protecting and growing our clients’ capital.

  • Market Musings - October 2015

    "When the winds of change blow, some build walls while others build windmills. " Greece may have receded from the headlines but investors did not put their worry beads away in the third quarter. They were exercised by three things. The first was the possibility of the U.S. Federal Reserve (the Fed) raising interest rates for the first time in nine years on the back of the recovery in the economy... by a token ¼%. The second was China’s tumbling stock market and the depreciation of the renminbi (Rmb). And the third issue was manifest in collapsing commodity prices. Some investors will choose to respond to these winds by hunkering down and building walls. We prefer to build windmills. We embrace these winds of change via the identification of core structural tailwinds to direct our investment in our quest for real returns, ahead of inflation, for our clients.

  • Market Musings - July 2015

    Greece exit..or in...or in limbo? The quarter was marked by ongoing indecision. Greece dominated the headlines. In the corridors of Berlin there was serious talk of “Grexit”. Worrying signs emerged of the Chinese stock market bubble bursting. The US Federal Reserve prepared markets for the first interest rate rise in 11 years. While the investment backdrop may appear confusing, we remain excited by the structural growth sub-themes of technology and healthcare. For example, in 2014 a 3D printer made an electric car, the Strati, in 44 hours with just 40 parts. This has huge implications for the automobile industry, as does Google’s driverless car. Today people have more computing power in their smartphones than was available to NASA at the time of the first moon landing. Thanks to technology, the life expectancy of humans is increasing by five months every year. A female born today has a life expectancy of 100 years. This has significant ramifications not just for the healthcare sector, but also for pensions and investment structures. ‘Next generation’ sequencing, done at high speed and low cost, enables genetic information to be extracted from biological samples to address an array of health problems. If a nasty medical condition can be caught before it happens, it is much cheaper to deal with than treating the consequences after it has developed. This will be a powerful way for healthcare systems to cut costs. The ‘100,000 Genomes Project’ in the UK aims to sequence 100,000 NHS patients by 2017. Find out more in our latest edition of Market Musings.

  • Market Musings - April 2015

    A year ago investors were disbelieving as key Western interest rates approached zero on the back of extended quantitative easing (QE). Assuredly that was the climax of central banks’ determination to kick-start growth… wasn’t it? Despite pockets of good news, prospects for the global economy remain chequered. Moreover, even the one country that has made solid progress in recovering from the 2008 crisis, the United States, now finds the path back to normalcy problematic. The Fed sees growth recovering and has mooted starting to raise interest rates gently – but investors, desperate for yield, have responded by pushing up the dollar, so impairing exports and lowering inflation – and undermining the case for raising interest rates. How does an investor approach this backdrop? Find out more in our latest investment newsletter.

  • Market Musings - January 2015

    Is this the dénouement of the 2008 credit crisis? The oil price has plummeted by 60% from $115 in June 2014 to $45 in January 2015. The Swiss National Bank has ‘rolled over’ on holding down its currency and removed the SFr1.20 cap against the €uro introduced in 2011. The European Central Bank (ECB) has finally embarked on full blown quantitative easing, announcing the purchase of €1.08 trillion of Eurozone sovereign bonds over 18 months. The world economy is essentially flying on just the one engine of the US economy now. Against this backdrop, what is changing and where are the investment opportunities?

  • Private Client Letter - October 2014

    The US economy is thumbing its nose at the sceptics of quantitative easing (QE). QE was only ever intended to fill the credit gap left by banks in the wake of the credit crisis in order to help the American economy get back on track. And the economy is indeed recovering. Jobs growth has accelerated and household deleveraging has stopped. Business capital expenditure is benefiting from the surge in shale fracking. Total bank credit grew at a 7.5% annual rate in the second quarter, the fastest since 2007. Prime office rents in Manhattan have climbed by 25% in six months to $2,980 per square foot (£1,850).

  • Private Client Letter - July 2014

    The US economy is bouncing back. Payrolls jumped by a robust 288,000 in June, bringing the unemployment rate down to 6.1% from over 10% in November 2009. It was the fifth consecutive month of growth over 200,000 for the first time in 14 years. Morgan Stanley’s Business Conditions Index rose three points to 62% as increases in hiring and capital expenditure underpinned a strong gain in expectations. The impact of a harsh winter has proved shortlived. The upturn rests on increasingly firm foundations. The federal budget deficit has fallen from 9.8% of GDP in 2009 to 4.0% last year. The trade deficit has declined from 5.6% of GDP in 2006 to 2.8% in 2013. Household debt service payments have fallen to their lowest share of household income since measuring began in 1980, and corporate balance sheets are the strongest in recent memory.

  • Private Client Letter - April 2014

    Tapering is on track! The US Federal Reserve (‘the Fed’) has expressed its confidence in America’s recovery by reducing its bond buying programme by $10 billion per month, starting in January 2014. Recent economic data support their confidence. The Purchasing Managers’ Index is increasing, while payrolls, consumer confidence and the Case-Shiller home price index surprised on the upside.

  • Private Client Letter - January 2014

    The previous three efforts of Dr Bernanke, Chairman of the US Federal Reserve (the Fed), to exit quantitative easing (in 2010, 2011 and 2012) had caused markets to fall sharply and he was forced to re-start the printing presses. In May last year, even the mention of tapering caused markets to shudder. However, Dr Ben massaged investors, delayed acting in September, and then in December finally announced the tiniest of tapers, from $85bn a month to $75bn from January, although with the prospect of more to follow.

  • Private Client Letter - October 2013

    This was the quarter in which Ben Bernanke, Chairman of the US Federal Reserve, blinked. Having mooted in May that the US economic recovery was sufficiently entrenched that he anticipated being able to ‘taper’ quantitative easing, probably in September, Bernanke announced after the Fed’s September meeting that bond purchases would remain unchanged at the rate of $85 billion per month.

  • Private Client Letter - July 2013

    For nearly five years now the West’s economies have been on the monetary life support system known as “quantitative easing” (QE). However, in a press conference on 19th June, Dr Bernanke, Chairman of the Federal Reserve (the Fed), mooted a possible timetable for curtailing further stimulus in the United States. It is data dependent - the unemployment rate must fall to 7% from the current 7.6% - but this is anticipated by end-2013, enabling QE to be wound up by mid-2014.

  • Private Client Letter - April 2013

    What is the role of government? This question is defining world markets at present. Most would agree that the government’s role is, broadly speaking, to improve the lot of the individual. Clearly the ‘lot’ of an individual is multi-faceted – freedom, security, etc – but the cornerstone is surely economic wellbeing.

  • Private Client Letter - January 2013

    Hiking is one of Angela Merkel’s favourite pastimes. Reportedly she is not a fast hiker, actually quite slow, but dogged, step-by-step, no matter how tough the terrain. She doesn’t give up. ‘Step-by-step’ aptly summarises the course of the global economy in 2012.

  • Private Client Letter - October 2012

    The sluice gates are open wide and none of the quarter’s potential accidents happened. Markets rose on a wave of liquidity and relief.