RINGING THE BELL

You know my views on the disconnect between financial asset pricing based on the crowd's recency bias of the last five years of experience.

These behaviours can be traced to:-

• Cheap-money-era ( over-leverage & over-pay);
• Government-distorted-spending;
• Exploding government debt, public-employment & interest costs.

However, I have been significantly increasing my probability weight on the scenario of downside to risk asset prices over the last three (3) months (note our January and February updates) primarily because although fires can naturally occur with the three elements of the fire triangle, adding a chemical reaction, combustion, sparks what becomes a fire tetrahedron.

That spark. That combustion. In the global investment environment, is the Trump administration’s policies.

Politics has increasingly become divisive globally. As investors, we deal with what is and not what could be or should be. But yesterday, it echoed loudly that Chairman Powell openly discussed specific government policies (Tariffs) and their impacts on inflation and growth but refused to say anything as overt over the last four years on immigration or reckless fiscal spending.

Trump and his team are right in that most governments have continued to do the same thing, expecting a different outcome, and he will not follow that course.