Happy Fourth of July! A joyous occasion marked by vibrant fireworks and indulging in a staggering amount of hot dogs, 150 million of them being consumed in the US alone on this day. The Nathan's Hot Dog Eating Contest is one of the highlights since 1916 as the best eaters in the land compete for the mustard belt. Joey Chestnut is favored once again after eight victories in a row, but you might remember our stories of Takeru Kobayashi from our YouTube channel as he efficiently changed competitive eating for all time.
Last weekend was far from mundane, as a mutiny in Russia approached eerily close to Moscow, which surprisingly had little impact on the markets, fixed income, equity or commodity. This demonstrates how the market have already factored in such pandemonium and turmoil. Fortunately, Josh kept me informed about the developments while attending the Cubs vs. Cardinals baseball game in London. It turned out to be the most attended MLB game of the season, as the former Olympic stadium was transformed into a lively baseball stadium.
On a related note, Josh is actively involved in raising funds for the crisis in Ukraine, putting together and sending care packages of humanitarian aid to folks in critical need of humanitarian aid. I encourage you to support this cause by either donating to British-Ukrainian Aid if you’re in the UK or through your local charity wherever you are.
In terms of the equity markets, we have witnessed a decent rebound lately. However, this recovery has been primarily driven by poor earnings growth rather than robust performance. Traditionally, good earnings growth entails companies selling more than in the past, leading to increased profitability. Unfortunately, the current uptick in stock prices is driven by cost reductions, particularly through employee layoffs. This pattern aligns with what we typically expect in this phase of the economic cycle, as central banks aim to curb inflation by raising interest rates.
Inflation has been the main conversation in the markets over the last year, and is now fully mainstream as Taylor Swift and Beyoncé concerts have started to hit the news on shifting local inflation. All the while the United States seems to have successfully curbed inflation, Europe is making progress in the same direction. Conversely, the UK is grappling with rampant inflation, while China is focusing on stimulating its economy. As a result, the Federal Reserve has temporarily paused its rate hikes, China has decreased interest rates, and the Bank of England is increasing rates at a faster pace to catch up.
These divergent actions underscore the fact that the global economy is now fragmented, with different regions moving in distinct directions. We anticipate developed markets aligning their interest rates with those in the US to combat inflation. Once the interest rates on bonds in these markets converge, rather than solely in the US, we can expect capital to flow out of the US, potentially weakening the dollar.
In light of these developments, we are preparing to reallocate some of our fixed income investments to other currencies in the coming months and fine-tune our investment strategies accordingly.
Turning our attention to the equities market, the majority of gains can be attributed to a rebound in the technology sector, particularly companies incorporating artificial intelligence (AI). This trend is reminiscent of previous years when buzzwords like the metaverse or cryptocurrency dominated the markets. As before, we anticipate a gradual deflation of this AI "balloon," leading to a differentiation between companies genuinely implementing AI strategies and those whose CEOs simply employ jargon.
This was an ideal moment to meet Jonathan Krane, the founder of Kraneshares, for coffee to delve into the topic of China and their investments in the country. Krane exuded unwavering optimism regarding the eventual recovery, emphasizing that it might simply be delayed, and reassured that stimulus measures, such as lowering interest rates, would encourage consumer activity and spending. He highlighted the interference of geopolitics on consumer behavior, acknowledging that it had become a significant factor. Furthermore, he mentioned that Europe is urging China to play a mediating role in resolving the conflict between Ukraine and Russia.
Dunhill Financial - 2nd Quarter Economic Update - July 5th 2023 at 1430 BST / 1530 CET
You can view our full event calendar and country specific webinars here.
The windfall elimination provision currently results in a reduction of American social security benefits for individuals who receive a foreign pension. Fortunately, the 118th Congress has taken steps to address this issue through the introduction of House bill H.R.82 - Social Security Fairness Act of 2023, as well as the Senate version, S.597.
We are finally relaunching www.df-direct.com this month, our robo advisor for American expats overseas. This low cost solution will offer any client the opportunity to invest into our portfolios through a digitized solution. Please sign up here to get all announcements and promotions here. We will also publish our book on financial planning for American Expats, and you can sign up for the pre-launch of the book here.
Please accept my apologies for not writing last month. Unfortunately, I faced a series of personal challenges, including a trip to the US for my Grandmother's funeral and other family issues, which made it difficult to gather my thoughts. However, I'm back with an update on the recent events and market trends that have been shaping our investment landscape.
On a positive note, the ESG (Environmental, Social, and Governance) sector has recently achieved significant milestones. Investments in solar energy production facilities have surpassed those in oil exploration in 2023. This shift opens up new opportunities for investment and reinforces the importance of sustainable energy sources in shaping our future.
I would like to extend an invitation to our upcoming quarterly economic update, scheduled for Wednesday July 5th at 2:30 BST. We will delve deeper into the topics discussed in this newsletter and provide you with valuable insights into the current economic landscape. We will also discuss our corporate periodic table of returns as can be seen below to reflect why a diversified portfolio outperforms over time.
In my preparation for my bike ride from London to Paris, I got knocked off my bike from an opening door of an Uber. I would therefore like to remind everyone of the Dutch Reach! It involves using the arm furthest from the door so that your body must turn towards the window for a better view.
I hope you find a way to keep cool in this hot summer (like Nala has) and that you have a wonderful Independence day filled with great hot dogs like the one Isa found at the Cubs game last weekend!
Best regards,
Brian
If you have any questions, don't hesitate to contact us.
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