Central bank hiking cycles in the developed world are slowly but surely coming to an end, raising the question of whether they have pulled off a soft landing, defined as a fall in inflation back towards target of around 2% without a meaningful decline in output and rising unemployment. On the face of it, the answer to this question is a resounding no. Interest rates in Europe, the UK and the US are up anywhere from 300 to 450bp in less than a year, driving up bond yields , and pushing yield curve inversions to near record levels. Anyone using these data points to predict what comes next, using historical relationships, will conclude that the wheels are about to come off in developed economies and their financials markets alike. The difficulties in the US regional banking sector is, in this case, simply a canary in the coal mine, warning of bigger shocks to come. The investment implications of such a view are simple; short equities and long short-term government bonds.
Read MoreWhat’s happening in Ukraine is important. The fog of war remains thick, but the incoming news is increasingly clear. Ukraine’s counteroffensive is progressing more quickly than even the most optimistic experts had predicted. The latest reports suggest that Ukraine is on the brink on retaking Donetsk, and its airport, which would be extraordinary. There are now signs that Ukraine’s success on the battlefield is being admitted on Russian state TV. Assuming this news out of Ukraine is even partly true, we are now, in my view, in a very dangerous phase of the conflict. I am saying this precisely because Ukraine’s offensive itself is morally and politically unchallengeable. Ukraine has a right to defend itself, and to exploit its military initiative. Considerations about Russia’s potential response to what can only be described as a humiliation are absent, in both Kyiv and Western capitals. Such considerations might arise soon enough, but for now the sentiment is clear. Russia is getting a good beating and it had it coming. I wholeheartedly agree.
Read MoreI am still collecting my thoughts, and catching up with work, after holiday, so a few Random Shots are in order. For general reading inspiration I’d recommend Aeon, Arts and Letters Daily, The Hedgehog Review and The Point. I try to consume as much from all of these as I can, in between the mandatory market/investment-related research.
Read MoreEquities seem to be in the throes of the death of a thousand cuts at the moment. The rebound towards the end of January, from the initial swoon, was reversed last week, and at this point a new low is all but certain. There are a number of things troubling equities. Geopolitics are a fickle catalyst for anything, but it has certainly added to the misery in the past few weeks. A Russian incursion in Ukraine remains a distinct risk, an event which would force markets to discount the risk of a more sustained military conflict on the European continent, not to mention a further leap in energy prices. The latter would intensify inflation fears, which are already weighing on markets in the context of the surge in bond yields, and the significant repricing in expectations for monetary policy, for both rates and QE. Investors could do with relief from these headwinds, but I doubt they’ll get it, at least not in Q1.
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