Investment Bulletins
By Charles Gillams on 28/07/19 | Macro
We are finally getting to summer, even if this week it feels it both came and went within a few days. Next week rounds things off with the Federal Reserve meeting. So this week we have a look around before, hopefully, it all settles back down for a real holiday.

Despite the apparent good news and a welcome political certainty in several areas, it all feels slightly false, or is that just late cycle jitters?

The big stories remain US economic dynamism, which seems unstoppable at present and the contrast with less focused economies, where other issues seem to prevail.


In the US, the markets seem to need to keep learning that tariffs don’t really matter to equities in aggregate, they do matter to some stocks, but perhaps rather less than you would expect. The nature of business is it solves problems and in my experience tariffs are soluble, as long as everyone in your market pays them, they are like any other tax. Even then business constantly innovates and gravitates to low tax solutions, that is just in its nature.

The importance of currency markets
Currency, as markets also seem to forget, matters rather more. So the US Q2 GDP data, and indeed Wall Street Q2 results (so far), were in my view all about the strong dollar winners (consumers, service sector) and strong dollar losers (manufacturing). If the pain gets too great from a strong dollar, that’s where the pressure comes from to drop interest rates.

While the converse should be true. A weak currency hurts consumers and the service sector but helps manufacturing. The economist’s crystal ball is clouded by the lags, in consumer products of up to a year to reprice (but getting shorter with digitalisation) and in manufacturing by two or three years to retool and divert.

So as we have rather expected, if everything else gets fixed, currency is the one escape valve.

This is all a way of saying the US Federal Reserve does not need to cut rates next week, and has no real need to in terms of either inflation or employment, but is under a lot of pressure to do so, to weaken the dollar.

Adopting too light a touch on Hong Kong?
Less well observed seems to be what is happening in Hong Kong, it is perhaps obscured by either the trade war with China or by colonial links, but strip those aside and everything we know about China is signaling brutal repression as their default option; conformity at any cost is required.

This does not feel like some velvet revolution, not with this country, with this leader.

Hong Kong is very important both to China and any hope of liberalization, but also to the world economy.

Link to this information source below

We are perhaps being too complacent over this. While Iran clearly matters, this feels an important source of summer angst in the markets.

The UK political scene - possible end of uncertainty
On the other hand, as we have written about before, the UK seems finally to have a measure of certainty. So the continuing fall in sterling feels, to us, more of an opportunity than a threat. Whatever else you can say about the recently departed Westminster regime, the words "great success” seldom feature.

There has been some noise made about the "reshuffle” of the Cabinet, but that is misunderstanding the change, it is a fresh administration, in possession of such mandate as it has, and determined not to die wondering. Not something the UK has had this century, so to me the scale of the cabinet clear out was largely to be expected.

As indeed is, following that logic, the scale of expenditure that will now follow. There is no rainy day to save for; we are in eye of the hurricane. While the allure of a little bit there, a little bit here and try to make the books balance, is second nature to the UK Treasury, but you can’t undo the mess of the last decade in such pitiful small slices.

On that basis and given the curse of low productivity and high debt levels, is as applicable to the UK as it is to so much of Europe, I can see the inevitable fiscal gamble merits a degree of caution about the currency. But we are still not in for the long grinding, threshing night of uncertainty for much longer.

Once the dam breaks (and frankly it is Utopian to hope otherwise) the landscape will be transformed. How or when or with what result we will find out. Yet sterling seems to exhibit no hope, when we are convinced there is some.

Markets are of course great for discounting the future and are always the sum of the parts of multiple decision makers, we know that. It would even be nice to assume the rather strong returns for both equities and bonds, especially in the US, will continue into the second half of the year. We are more inclined to hedge our bets.

Perhaps August will end up as sunny and calm as the rest of the year for investors, but we have yet to discard our umbrellas. 

By Ciaran Mulhall on 07/07/19 | Macro
As we look towards the second half of the year, we thought it was worth looking at Ciaran Mulhall’s views on the first half and some reflections on how the macro-economic backdrop has developed over the longer span of the last two years.

Growth, and expectations adjustments from 2017 onwards
"2017 and the first half of 2018 was all about "synchronized global growth”, the idea that Europe had joined the US and Emerging Markets on a positive growth trajectory – but this theme has now fallen away, as global trade tensions took hold from the second half of last year. While the economic activity data has not fallen off a cliff (global trend growth is now around 1.5%), elevated levels of hiring and capital expenditure have faded. It seems companies have significantly reduced their expectations for investment in the near future. We sense both current plans on hold, but also a wider strategic uncertainty.

This removed the hope that the global economy might have escaped the "new normal” theme of low growth and borderline deflation, caused by the structural headwinds facing the global economy, over the last decade, with the painfully slow recovery from 2008.

Central Bank Policies - the Fed and the ECB
Source: PWC – interest rate outlooks

The backdrop of better growth in 2018 saw the global Central Banks trying to remove accommodation (the Fed raised interest rates four times and trimmed its balance sheet, while in Europe the ECB tapered their bond buying under QE and even fantasised about raising rates in 2019). As the global economy slowed in the second half of last year and the Federal Reserve seemed determined to continue to hike rates, risk assets duly fell over - December was the worst month for equity markets since 2008.

This sell off and the signal it was perceived as sending about the outlook for growth, perpetuated a dovish pivot from Powell and the US Fed in January 2019, initially to one of a "pause in rates rises” to more recently the idea that an actual cut could be justified.

So, we have had the very odd dynamic, where equities have rallied on the back of the idea that a rate cut would support growth and bonds have also rallied, reflecting the slower growth and lower interest rate assumptions.

Three possible scenarios for the second half of 2019
How this resolves itself will be interesting to see - we have three different scenarios and of course it all comes down to how the actual growth numbers pan out.

What if the bond market bulls are right?
For Scenario One, if growth really is slowing very fast (so the bond market bulls are right) and the Federal Reserve is therefore forced to cut rates by between half and one per cent over the next year, then there appears to be little chance equities will hold up well. Valuations are just too high and stretched, to encompass a global recession, even if it is relativity shallow one.

What if we have a re-run of 2016?
Scenario Two is that we are now back in a rerun of 2016, when the bond market was also worried about global growth, but the combination of stimulus from China as well as the lower rate backdrop, allowed the global economy to ride out the soft patch and we were back on the growth and then tightening cycle in 2017.

A slow-down and subsequent stimulus
Then finally and we suspect the most likely Scenario, is we see a little of both the above, that is global growth does slow, with possibly a very short shallow recession, but the combination of the necessity for Trump to have a good economy for his re-election and loosening steps by the Central Banks, leads to a re-acceleration later in this year and into 2020. We are all familiar with the stats on the third year of a presidential term, showing stock market out performance, although quite how much influence The White House has is more uncertain, in the quite savagely polarised world we now have.

So, what about markets, in each scenario?
If we get Scenario One we would want to be short equities and commodities, long US Dollars (as a safe haven) and long bonds (even with the US 10-year bond at 2%). A proper global recession is something we haven’t seen for a long time, so this would be a very volatile period for asset prices, because the likelihood of a more sustained unwind of the excesses of the last ten years, could see some rather large moves. High yield bonds will be very jittery as will non-bank lending.  This won’t be the "buy the dip” type of risk-off move, which we have seen so many times, over the last few years.

For Scenario Two, where this has been just a short weak patch and we move back to the type of synchronised global growth theme we saw in 2017 – this would let the US Dollar weaken, as investors move out of the US, to higher returns in other global markets. Bond yields in the US will slowly stabilise and gently move back higher and equities should prosper, although with some indigestion as they get over the jolt of interest rates no longer trending lower. But with a realisation that a sharp monetary tightening, as in 2018, is now off the table. Powell won’t get that wrong twice.

Then Scenario Three, the mixed one, which is a more sustained bout of fading growth than we saw in 2016, which stretches into 2020, but maybe not long enough to get a recession - in this case we suspect bond yields will stay low, but probably can’t go much lower. The US Dollar would strengthen a little from here and then finally equities would be rather volatile, particularly around sector rotation, as investors move in and out of the various sectors, that benefit when economies first slow and then start to rebound.

Our view now is that we are likely to be in Scenario 2 or Scenario 3, we don’t see the kind of economic excesses that would suggest a deep global recession is on the cards. Indeed lagged projections using the financial slackening which we have already experienced, underpins the equity bulls.

On the other hand, our confidence in China reflating and pulling Europe up with it, has been dented by the on-going trade tussles, which have both become more complex and apparently less soluble.

With this strategic view in place we will continue to monitor the evolving macro-economic backdrop to see the extent and duration of this current fade in economic growth. We realise short term markets will be prey to both exuberance and panic, through the summer, whilst the data get a more solid footing. With our low volatility remit, that leaves us still cautious, despite the unexpected market gains from growth still looking adequate, but interest rates simultaneously predicting a sharp fall. A slightly disconcerting and illogical combination, which can’t persist.
By Ciaran Mulhall on 30/06/19 | Macro

As the first half limps over the line, dragging us behind it, Ciaran Mulhall of our Global Total Return Fund considers home and how the US macro scene will evolve in the second half and beyond. Markets as we know are a discounting mechanism, so what we see now is reflecting an endlessly rebased future.
"Back at home base this week looking out at Dublin bay it occurs to me, while watching the reality TV show that is the G20 meeting in Japan (starring Donald Trump of course), that US voters next year might well pivot back to less drama and less unpredictability.

Do the Democrats have a chance?

Trump’s label for Democratic front runner Joe Biden is "Sleepy Joe” – I wonder by this time next year if voters will be craving a world where politics doesn’t seem to play such a dominant role, so that "sleepy” might be a positive not a negative.
Outside of periods of armed conflict most Americans historically took relativity little interest in what went on in Washington. While it was a convenient scapegoat for their ills, in reality it played a small role in their daily lives (good or bad). They tended to become more engaged around the election cycle, but that would generally be it.
Although it has been coming for a long time (primarily driven by social media, but also US cable news) rising engagement, across the political spectrum, has again increased dramatically since 2016. We may well reach a peak in electoral engagement and to some extent the polarization of the US political system, with next year’s presidential election.
Assuming the Democrats decide to put forward a "moderate”, our sense from this distance is that Trump is facing an uphill challenge in terms of being re-elected next year.
It doesn’t have to be Joe Biden, but needs to be someone whose beliefs around healthcare and immigration are closer to the middle, than some of the more extreme left views that received a lot of attention at this week’s Democratic TV debates.

The core Trump vote base - what was delivered, and how?

While Trump will likely hold on to his diehard base – the most generous measure of which is about 35% of US voters – that still leaves a strong middle ground of about 15% of Americans (who voted for Trump in 2016) who seem to be growing weary of the helter-skelter of the Trump White House.
Interestingly this seems to be driven in part by the business community, who while delighted with last year’s tax cuts and some reduction in post global financial crisis regulation burden – have become increasingly concerned by the role which trade wars have played in the Trump agenda.
The focus is China, but there is also concern at how it was misused to leverage Mexico, to increase its military presence on its southern border, in an attempt to reduce the migrant flows reaching the US.

The impact of Trump's actions on business investment

Looking at this week’s final adjusted reading of Q1 US GDP, it is obvious that business investment has been slowing since H2 last year – right around the time when Trump turned his attention to China. Creating a dual impact with the precautionary rises in US interest rates, which we now know were not needed to quell inflation.
The business community needed to see some visibility on US trade policy, before being able to commit resources. The decision takers in the real economy want to be reassured that this period of uncertainly won’t tip the US back into recession. We don’t see this as a high risk at the moment, but if I was running a mid-sized US service based business, I am not sure if I would be quite ready to open that new office just yet.

As ever with business confidence, it is the second order impacts, the loss of forward momentum, that causes the actual damage. The real difference it has made to inflation or employment (or even the trade deficit) still remains rather trivial.
So from an investment point of view, we see choppy waters ahead, not so much, as yet for the US economy, but more for market sentiment and confidence.
We therefore continue to favour non-US risk assets – a strategy that we admit has led to some underperformance by the GTRF so far this year.
Ultimately with some uncertainty on both the economic and political landscape in the US and a very narrow market leadership, we continue to see value elsewhere.”

By Ciaran Mulhall on 02/06/19 | Macro


After another torrid week in the markets and disruptive Twitter feeds, Ciaran Mulhall shares his views from the Far East, for a different perspective.

The Singapore economy

Writing this week from Singapore – one of Asia’s financial and economic hubs - walking around the National Museum of Singapore this afternoon, I am struck by how focused the Asian economies remain on the promotion of economic growth. Singapore like most countries in the region is playing the long game and has been for many decades building up top class infrastructure, improving communications and promoting the quality of life of its inhabitants – this is in stark contrast to Europe and the United States, where we seem to have stepped into the Twilight Zone.

Late Thursday night, the US President announced, to the surprise of most if not all his closest advisors, that the US will be imposing 5% (and rising) tariffs on imports from Mexico. This is a response to what the US President feels is the lack of action by Mexico, in stemming the flow of migrants coming from Central America through Mexico and arriving at the US border.

Employment and job vacancy figures

While we can debate the scale of the current problem at the US southern border, there is no doubt that the numbers arriving at the border have picked up in recent months. Partly we suspect driven by Trump’s own words about stopping the flow (which possibly leads to a rush to ‘beat the ban’) and partly as a result of the continued deterioration in economic conditions on the ground, particularly in El Salvador, Guatemala and Honduras.

Equally we can say that it has been in Mexico’s interest, not to add to its own problems, but to let the migrant flow from Central America move easily (and naturally) through Mexico and on to the US.

So does the US President have a point? He might have half a case, if the US unemployment rate was at 8% (not 3.6%) and US companies weren’t reporting a shortage of both skilled and more recently even unskilled workers.

For nearly a year now, the number of open jobs each month has been higher than the number of people looking for work - the first time that’s happened since the Department of Labour began tracking job turnover two decades ago. At the end of March, the US economy had 7.5 million unfilled vacancies, but only 6.5 million people were looking for work, according to data released last month by the US Department of Labour.

The hardest-to-find workers are no longer computer engineers (though they are still very much in demand). They are home health care aides, restaurant workers, and hotel staff. The shift is happening because more and more Americans are going to college and taking professional jobs, while working-class baby boomers are retiring en-masse.

Granted the work force participation rate is nowhere near as high as the job vacancies suggest, although it too is rising. In any event that will include some who can elect to participate in the labour market or not, never the easiest group to entice into work.

So what is Trump doing?

The simplest answer is that he is playing politics – once more blaming migrant workers for the ills of Middle America. Be it security fears or wider cultural ones or about depressed wage rates, which all worked well for him in 2016 and despite playing poorly in last year’s Mid Term elections (we all remember Trump sending troops to the border two weeks before the election), he obviously feels this is a card worth playing.

He has also found both the trade deal with Mexico and any action on immigration, either internal or external, hopelessly mired in the venomous partisan stand-off with the Democrats. It has become clear that they see obstruction as the best political game too, or fear that any sign of acting in the National interest will lead to an onslaught from their hard core base, pulled inevitably to the extremes, by a very wide primary field of their own, who are frantically competing for media attention by growing ever more absurd. I wonder where they learnt that trick?

So Trump is playing the shortest of short games here – risking the long term growth prospects of the US economy for a political agenda, that if the Mid Terms are anything to go by, most likely won’t even prove to be that successful.

Investment implications of political posturing

Global equity markets on Friday took a dim view of the announcement (most major markets were down circa 1%), although it was (yet again) a shortened week in the markets. Volatility has been oddly relatively docile under the battering from the stalled China trade talks, at least compared to last December, but we are not sure how long that will hold, in the face of a feeling of growing chaos.

As we meet potential investors in both Singapore and Hong Kong in the coming days, we continue to articulate a cautious stance. It may be too early to talk of the summer lull, but most major asset managers seem to be sitting on their hands already. If they end up doing so for the long summer we see no reason at present, to step in to the markets aggressively, either.

Ciaran Mulhall
Solus Capital Partners Ltd

By Ciaran Mulhall on 19/05/19 | Macro


It has been a baffling and perhaps not that comfortable a week for investors again, as big market movements seem unrelated to actual events; rather more linked to media stories. Ciaran Mulhall considers that and how at times like this, outperformance comes from the more technical and often invisible skills a fund manager must bring to bear on your behalf. Centred on portfolio construction and risk management issues, he explains why sometimes, even when the sun is shining, we carry an umbrella; that’s our role.

"This week we continue to grapple with managing money with the backdrop of an American president conducting both trade (Chinese and European tariffs, threatened or otherwise) and foreign policy (potential armed conflict with Iran) through the medium of Twitter.

While Donald Trump’s Twitter feed has (for good or ill) been part of our lives for the last two or three years, we would point out that geo-politics may now play an even greater role in the daily performance of asset prices. That is because the market seems broadly comfortable that global interest rates will stay subdued for the foreseeable future (with a possible cut from the Federal Reserve if the economic data were to weaken). This largely eliminates the markets’ normal fixation with the twists and turns in yields and inflation, for a while.

Having underperformed the market in sunny March and April, the Global Total Return Fund entered May with our core portfolio well hedged with downside protection – this in turn has led to some welcome outperformance so far in the storms of May, but we continue to grapple with what comes next.

Will the market look past the US China trade war and find some comfort that global Central Banks have investors’ backs, or are we heading for a rerun of the 2019 Q4 selloff, as the market moves to price in a further slowing down in global growth expectations?

While we ponder these ideas this weekend, I am also reminded of how important investor psychology is to what we as fund managers do day in, day out.

Something that we have seldom mentioned in terms of how we approach investing, is that ideas, must be carefully linked to risk management and portfolio diversification, in generating outperformance. It’s the checks and balances that let you achieve your aim, and which we seek to provide.

So risk management and how we construct our portfolios play a very important role in our investment returns.

Picture summarising article on durable portfolio construction – see rest of article here.

So to bring it back to Mr. Trump and his Twitter feed – while the risks around a global trade war have increased and there seems at least some chance that we will get an armed conflict over Iran – the likelihood of these events having a material long term effect on our returns, comes alongside how competent our risk management is and how we construct our multi asset portfolio.

So rather than speculating too much on those, when the market seems conflicted, volatile and not making a lot of sense, we focus on the basics, on having an all-weather performance and keeping a close eye on risk.”

Ciaran Mulhall, Solus Capital Partners Ltd

By Ciaran Mulhall on 05/05/19 | Macro

This week Ciaran Mulhall looks at two key areas for our Global Total Return Fund and how green shoots are starting to show in those economies. He notes an interesting asymmetry in how markets have reacted, running ahead of the Asian promise but perhaps lagging behind the European delivery.


While the most recent China equity market performance has been somewhat disappointing, after a brisk start to the year, we remain committed to our core long position. Chinese policymakers confirmed in mid-March, at the annual National People's Congress meeting, that they will provide meaningful fiscal stimulus in 2019.

The combination of a VAT tax cut and a boost to infrastructure spending (via an increased quota for financing through a "special bond" issuance) should add up to roughly a 2 percentage point widening in China's "augmented fiscal deficit" this year. This fiscal stimulus is now beginning to show up in the underlying macro-economic data, particularly with improvements in both the public and private measures of business activity.

On the monetary policy side of the ledger, the recent effective easing is probably more in the later stages of the process, although we still expect the bank reserve requirement ratio to be brought down further this year. Housing finance policies may also be loosened in certain Chinese cities but probably not nationwide.

All in, Chinese government stimulus (fiscal & monetary) perhaps looks modest compared to the response following the 2015 downturn and certainly compared to 2009. How effectively this stimulus will now be transmitted into the real economy remains to be seen, particularly with respect to private companies, which still face tight credit conditions.

But it is also very important to remind ourselves (as the high profile China bears continue to bang their drums to tell us otherwise) that the goal of stimulus is also more modest this time, so at 6-6.5% real GDP growth in 2019, versus 8% in 2009 and 7% in 2015. Policymakers are also not contending with the equity/forex market volatility and capital outflows, which they had to react to in 2015.

The external backdrop for China is also likely to improve as major developed markets begin to grow faster in the second half of the year. This should help the export backdrop for Emerging Asia to improve from anaemic to merely soft. The geo-politics around the Pacific looks a little less hostile too, but that as ever remains unpredictable.


That brings us on nicely to our other core long position, in Germany, through the DAX, where just when you thought that the U.S. economy was the only game in town, Europe delivered a nice one-two punch for our case, last Tuesday.

Not only did euro-zone GDP growth numbers beat expectations, but Germany’s Consumer Price Index reported 2.1% year on year growth -- above both market expectations and of course the ECB’s policy target.

One can imagine Mario Draghi (Head of the ECB) heaving a sigh of relief as that key European data hit the tape. Not only did growth outperform expectations (including in Italy!), but that German inflation number was surprisingly perky. An upward tilt to the nominal growth trajectory would be a welcome development in Europe, and raises an interesting question. With U.S. equities at all-time highs but the Euro STOXX 600 languishing below levels seen last year (and 2015...and 2007...and 2000), is now the time to rotate into Europe and elsewhere in the world?

While it is the case that a few segments of the U.S. market have run ahead of themselves, the value proposition for many other markets does still remain littered with pitfalls – selection as always, will still be key.

Having discussed a few weeks back our preference for European risk assets later this year – that point might actually be coming sooner than we thought.

Ciaran Mulhall
RJMG Asset Management Ltd


RJMG Asset Management Ltd is authorised and regulated by the Financial Conduct Authority (FCA). This report is for general information purposes only and does not take into account the specific financial objectives, financial situation or particular needs of any particular person. It is not a personal recommendation and it should not be regarded as a solicitation or an offer to buy or sell any securities or instruments mentioned in it. This report is based upon public information that RJMG considers reliable but RJMG does not represent that the information contained herein is accurate or complete. The price and value of investments mentioned in this report and income arising from them may fluctuate. Past performance is not a guide to future performance and future returns are not guaranteed.


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