In the aftermath of storm Donald
“There are years when nothing happens, and there are weeks when decades happen” this quotation is incorrectly attributed to Vladimir Ilyich Lenin but, regardless of who actually said it, these comments can certainly be applied to the months just passed.
When making plans there are always variables and constants to consider, but it is hard to make a decision when uncertainty pervades. My wife and I are currently planning our daughter’s wedding in Ireland so our biggest uncertainty is the weather; more so than if we were hosting the ceremony at our home in Norfolk. But the investment weather appears increasingly uncertain as the chart below illustrates. It shows the Global Economic Policy Uncertainty Index as published by the US Federal Reserve based on a GDP weighted average of 20 nations. The data goes back to 1998 so includes several economic cycles and events that many of us remember. Clearly the increase in globalisation is a factor in the trend but notice how the level is higher now than at the peak of the COVID pandemic. Implicit within this chart are the anxieties over geopolitical events, global policy shifts and more recently trade tariffs.
As you may recall 2024 saw a high number of elections, so in many countries new government means new leaders and huge shifts in policy. Nowhere is this more obvious than in the USA. So it is natural for consumers and decision makers to pause and take stock of the changes announced.
The art of the deal
President Trump is not wholly responsible for all this uncertainty, but the policies of his administration have cast a huge shadow over events and markets these past few months.
Indeed the pace of presidential orders and the flip-flopping on policy makes it hard to keep up with decisions. A couple of days after announcing a 50% trade tariff on the EU, president Trump has postponed them until 9th July. Such behaviour has led to the rise of various acronyms. I was particularly taken with TACO recently coined by a columnist in the FT, which stands for Trump Always Chickens Out.
Our curiosity to understand the Trump playbook uncovered an interesting article by BCA Research analyst Marko Papic. Written a year ago Papic identifies 7 steps of maximum pressure that characterise the Trump deal:
“Ask for the moon” and open with “maximalist goals that are bordering on fantasy”.
Follow up with “madman” behaviour and overwhelming threats.
“Punch someone in the mouth” to back up your maximalist threats.
Break bread, make friends, start negotiations.
Leave the bride at the altar, causing negotiators to scramble to accommodate you.
Kiss and make up.
Make a deal, and proclaim it to be the greatest deal ever. (Until the next one)
I leave it for our readers to pick a current White House policy and decide which step has been reached.
Credibility Matters
In recent weeks we have spent more time reading and listening to the investment managers we trust. Economic forecasting is often more art than science so we read widely. In their latest bulletin PortfolioMetrix made an observation that struck as interesting, namely that that Institutions matter more than forecasters.
“Independent central banks, predictable legal systems, and transparent regulatory processes are not exciting headline topics—but they’re the foundations of investor confidence. They reduce uncertainty by anchoring expectations, even when the political cycle is noisy.”
CHART
In today’s connected world it is very easy to get caught up in the noise. On social media they call it doom scrolling. It is human after all to latch onto the extreme stories and images, particularly when individual suffering occurs. At times we need to step back and take a different perspective. One of the key planks of our process at Eclipse is managing risk and ensuring that portfolios remain suitable within the tolerance of individual investors. We remind ourselves that markets are inherently forward looking and remaining invested in a diversified portfolio is crucial. This enables us to stick with the plan (trust the institutions) and focus on the objectives.
One of our portfolio managers Tony Conway at Fiske is currently walking the pilgrimage route from Canterbury to Rome. Each year he and his wife walk a section of the route and he has likened their progress to his journey as an investor. There are times when the wind is at your back and the sun is on your face, and then there are times when the climb is so arduous that you just want to give up.
“We knew from the outset that we would encounter hardship from time to time. Even so, the first mini-crisis came as a shock that instantly sapped our collective will.
Having endured a pretty tough day, we arrived in a hilltop village in France. Exhausted, we pulled off our rucksacks and glanced around for the church where we were due to spend the night – only to gradually realise it was several miles further away.
We were crushed. We felt we had nothing left in the tank, and the thought of ploughing on was utterly dispiriting. Yet we eventually scooped up our bags and pressed ahead – and our doom and gloom began to dissipate within a few hundred yards.”
Tony will shortly embark on the final leg this summer and expects to reach the Eternal City in August. A great achievement and proof that sometimes you just need to put one foot in front of the other to reach your goal. We wish him well.
The legendary investor Warren Buffet recently announced his retirement after a long and distinguished career. Buffet often commented that his “favourite holding period is forever”. If one has faith in the process and the fundamentals of your holdings then persistence and patience will reward you.
We live in interesting times.