Turbulent geopolitics is unfortunately, just a feature of the world we live in. As is the fact the US president’s path wavers between diplomatic dealmaking and destruction. While we of course hope for lasting and peaceful solutions, the unpredictability of the situation and sheer volume of content available elsewhere mean we feel we can add little to the discussion around the situation in the Middle East.
Instead, I start this week’s missive with more on the relentless march of the machines. Social media is seemingly full of AI-generated videos already, and it’s now forcing its way onto traditional media. This month saw the release of an AI-generated advert for a company called Kalshi featuring a succession of impossibly smooth-skinned individuals getting very excited about the possibility of gambling, or as the Americans often prefer to call it, trading, on a series of strange events. The buzz the advert has created implies there is an extra level of return available from commissioning such projects (at least in the near-term).
Perhaps one event even the most publicity-hungry bookie would shy away from taking bets on is the likelihood of JD Vance wholeheartedly agreeing with whatever Donald Trump says. The latest from the President’s right hand yes man is a stinging criticism of the Federal Reserve. The VP has said the Fed is headed up by a ‘numbskull’ and is committing monetary malpractice by not cutting rates faster. This didn’t stop US (and UK) rates being held rather than cut last week.
The most obvious issue here is that calling someone you want a favour from a ‘numbskull’ is generally not a good idea. It’s also not immediately obvious how Jerome Powell is being numbskullish.
May’s non-farm payrolls data, released on 6 June, shows a gain of 139,000 jobs. That is not only positive, as it has been every month since the pandemic, it was also ahead of expectations. The latest inflation data showed the increase in prices was 2.4%. That was below forecasts for a reading of 2.5%, but it is up marginally on April’s figure and ahead of the 2% target. Central Banks generally don’t cut rates rapidly when the labour market is strong and inflation is above target and rising. We also feel the Bank of England is justified in holding rates for now. Inflation remains stubbornly above target, at 3.5%. The impact of an unseasonably warm April means recent retail sales figures, generally a useful proxy for the health of the consumer, have been very difficult to unpick. Consumer confidence is actually reasonable, so holding fire until August, at which point a gentle move downwards is probably going to be appropriate, feels perfectly rational.
On the subject of rationality, the strapline Kalshi went with is ‘the world’s gone mad – trade it’. In our world at least, this is perhaps the worst possible advice. In an active and volatile market, overtrading is highly likely to incur transaction costs through commissions, spreads and taxes. But far more damaging than that is the risk of discarding perfectly good investments at precisely the wrong time. In the mad world Kalshi describe there are many unwanted distractions dying to compromise investors’ decision-making ability. Being influenced by anything other than rationality is very dangerous.
Navigating through this age of information overload and political 180s may not be the challenge that inspired Kipling, but perhaps the hardest part of investing in today’s world is indeed keeping your head when all around you are losing theirs. Our crystal ball is no clearer than anyone else’s. We have already seen one crazy fortnight when the bottom fell out of the market then recovered sharply, and a president writing their own rules on international relations means there is a risk of more volatility in the future. With that in mind, at this juncture it is imperative to choose investments wisely and stick to a robust process.
As far as clients go, the benefit of a well-timed conversation with an advisor or investment manager won’t directly appear on the annual valuations, but in today’s world it can be exceedingly good value.
George Salmon – Senior Investment Analyst
FPC25432
Hawksmoor Investment Management Limited is authorised and regulated by the Financial Conduct Authority (www.fca.org.uk) with its registered office at 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. This document does not constitute an offer or invitation to any person in respect of the securities or funds described, nor should its content be interpreted as investment or tax advice for which you should consult your independent financial adviser and or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. The editorial content is the personal opinion of George Salmon, Senior Investment Analyst. Other opinions expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represent the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. Currency exchange rates may affect the value of investments.
