Change is inevitable…
The Christmas party season provides an opportunity to reflect and share ideas with colleagues and associates on what has been a very eventful year.
Many of the managers we speak with talk of “US Exceptionalism” and believe that risk assets will continue to be rewarded in 2025 as the AI theme broadens out to other companies. The US market has certainly had a tremendous run in 2024 but how far can that continue?
It is said that change is inevitable so what goes up can also go down. Secular trends can last decades but intermediate trends are fickle. A current example is the rally in Bitcoin which reached $100,000 after a rise of 47% over the past 3 months. Where this goes we don’t know but history provides some interesting exploits that did not end well. The Tulipmania of 1636-37 saw the price of bulbs rise 200% when Dutch society went crazy over exotic tulips. The upsurge in prices enticed more buyers in to the market but it only took a small number of people to start selling in 1637 to burst the bubble. One pleasing legacy of this exuberance is that the fields of Holland are filled with colourful flowers to this day. A century later the shares of the South Sea Company here in England grew steadily from 1711 before growing tenfold during 1720. The business model was horribly flawed but that did not stop speculators blindly seeking profits, so when the bubble burst later that year the impact was widespread requiring the government of the day to pass an Act of Parliament. These and other salutary tales including the Trump Shuttle debacle are relayed by John Kenneth Galbraith in his thought provoking book A Short History of Financial Euphoria. Caveat Emptor.
The sound of 2024 has resonated to the tunes of regular elections and political events but inflation has been a constant rhythm that looks set to continue.
The re-election of Donald Trump surely brings more change and uncertainty to proceedings and let’s face it we don’t know if he will make the changes he spoke of during the US election. A new fiscal stimulus is one act we can expect as the 47th President seeks to reward his base but this may push the fiscal deficit to even higher levels and the bond markets might take exception to that.
He said tariff “is the most beautiful word in the dictionary” but does President Trump have the authority to impose a universal tariff by executive order ? There are certainly risks to inflation if he does and already the pronouncement on China, Mexico & Canada is making an impact on policy in those nations. Bluster and outburst are straight out of the Trump playbook as a negotiation tool and my recollection is that he admits that in his eponymous handbook Trump the Art of the Deal. (currently available on Ebay for £7.84 if you are interested). These countries account for around 40% of US imports so China & Mexico are the big targets. As for the rest of us, the UK runs a trade deficit with America but we shall not be immune from any punitive action against Europe.
Some years ago I recall seeing the following message on a bumper sticker:
Change is inevitable…except from a vending machine
The point is still valid but the exception is no longer relevant as no-one under the age of 40 carries cash anymore, let alone loose change. According to the Bank of England 83% of transactions are now cashless yet the same survey showed 21% of Brits prefer to use cash.
There is a reassuring simplicity in placing coins into a slot and reaching for the parking ticket or chocolate bar from the vending machine. Only last week I found myself hurriedly pressing buttons on my phone and hoping the 4G signal would enable me to complete the transaction before my train departure. That probably puts me in the 21%.
This will probably be the final Eclipse First…before Christmas so let’s leave the last word on financial history to JKG “Those who know it not are doomed to repeat it “.
Wishing you all a happy Christmas and a prosperous new year
Max & David