The timing of this report is a little unfortunate as we move from one meaningful vote/debate to the next and so ad infinitum. Accordingly, we will not be addressing the European question this time.

Possibly I should be apologising in advance as the report is rather heavy on the topic of interest rates, which can be a shade dry. Our excuse for this is twofold: firstly, we feel that central banks have just about exhausted their ability to bolster economies with ever lower base rates and secondly, that long-term interest rates reached their low point for this (long) cycle in September.

This latter point is the most significant for us as investors as turning-points in this cycle are rare: long-term interest rates reached a peak in the early 1970s (as inflation took off) and, essentially, have been falling ever since. The previous low point came after the Second World War, after which they rose steadily until that 1970s peak.

President Trump has been excelling himself and the trade war that he started with China rumbles on with a corrosive effect on the world economy. Quite possibly he misunderstands that these shenanigans, to a certain extent, actually suit China. The ruling Communist Party in China are aware that their economy could not sustain its heady growth rate indefinitely, certainly not without creating a boom/bust risk; a slowdown that can so easily be blamed on the Americans is just right. Equally, China is determined to avoid a ‘Plaza Accord’ moment (the 1985 agreement between the US, Japan, West Germany, France and the UK devaluing the US dollar) that China considers doomed Japan’s meteoric rise. It does appear that a partial truce might well be called soon, but these are high risk games to play. Doubtless this will be claimed by the President as a great victory, which will not be the case.

Our economy has slowed over the quarter, but continues to confound many of the gloomier prognostications. Bank of England Governor Carney does appear to be ruling out the nonsense of negative interest rates here, let’s hope so. Christine Lagarde has taken up her new post as President of the European Central Bank, perhaps she can bring a breath of fresh air to European thinking on the matter.

There is a case for thinking that we might just be reaching ‘peak uncertainty’ in the geo-political backdrop. Though I fear that the incumbent US President is capable of worse (as witness his recent appalling decision to withdraw support for the Kurds). We will continue to invest carefully for the long-term, while looking for opportunities amidst the volatility, in accordance with the levels of risk that we have agreed.

Important information

The above originally featured in our Autumn 2019 Private Client Quarterly Review so is for information purposes only and does not constitute advice or a personal recommendation. The value of investments and the income you get from them may fall as well as rise and there is no certainty that you will get back the amount of your original investment.  You should also be aware that past performance may not be a reliable guide to future performance.

October 2019