Investment Note

Market Insights 2018

Trade Wars: The Empire Strikes Back

When US President Donald Trump came to power last year, he brought with him an ambitious list of goals, including; building a wall between the US and Mexico, preventing some ethnic groups from entering the US, reforming corporate tax, withdrawing the US from climate pacts and addressing the trade deficit with China. He wanted to drain the swamp and fight the status quo -  a rebel if you will. He promised to shake things up and has recently been doing just that, by pursuing his protectionist agenda - much to the dismay of global markets. The threat of a so called ‘trade war’ is rising, and the main target of Trump’s opening salvos – China – can and will strike back.

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Germany 1 - 0 Italy

Much has been made in sporting history about German-Italian football rivalry. The two most successful football nations in Europe have made a collective fourteen appearances in FIFA Wold Cup finals, which is more than the rest of Europe combined. However, more recently, it is very much the German team who showered themselves in glory by lofting the 2014 World Cup trophy in Brazil. This success comes in stark contrast to the Italian team who very publicly failed to qualify for this year’s game in Russia. It would appear then, with all eyes on the German team defending the title at this year’s World Cup, this age-old rivalry is looking decidedly one-sided.

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A Return to Normality - Sorting the Wheat from the Chaff

For the past nine years we have been in the grips of a steady, if not rampant, Bull market in financial products. The financial disaster of 2008 seems long gone...and it is. For almost six years now, it has also been a story of almost unquenched, steady growth in financial assets and benign volatility. Making money on a consistent and steady basis is never so straightforward. So much so, we read article after article declaring “the new norm”. There is no such thing, and markets will always be at the vagaries of buyers and sellers. In short, they revert to type. The real world has is simply not that easy!

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Is there life in the old frog yet?

Well, we know predicting recessions is not an easy game. Indeed, one of the IMF’s chief macroeconomists, Prakash Loungani, recently observed that, over history, economists had consistently failed to predict 148 of the last 150 global recessions. If anything, the game of forecasting is getting harder, as any future recession will come off the back of central banks pumping $12 trillion into capital markets and setting interest rates to the lowest levels in history.

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Figures never lie, do they?

With this bull market now approaching its 10th year of straight gains, one cannot deny it’s been a great ride for investors and fund managers. Investment return over the timescale has been slow but sure and remarkably consistent. The champagne industry may attest to how steady things have been. However, has the market become complacent when it comes to evaluating risk? For the last 10 years things have only ever gone up, after all.

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