Mid-Week Updates

Ukraine, Markets and Liz Truss

There is simply too much going on to try and deal with each subject in a full long post, every week. So one of the things you will see here is the mid-week summary of the most noteworthy stuff going on, or that what I think deserves some analysis and commentary. Any topic will go and it may end up becoming a long post with multiple items, but let’s start with three important things happening this week.

Ukraine

It has been relatively quiet on the Ukrainian news cycles compared to the first few months of the war when social media were on fire and everyone was talking about it. The world has moved on, there’s other news (economy, Trump), summer season, but there is also a deliberate attempt by both sides to keep things shrouded in secrecy. But from what is reported and making it to our channels it is clear Ukraine is making solid progress with Russia taking a frontline beating. Of course, for the Ukrainians it is a necessity with (a) winter looming and (b) the not impossible chance of a fatigued world trying to force and broker a lasting ceasefire. So Zelensky has limited room to maneuver and needs to win and recapture as much Ukrainian soil as he can, now.

With it come risks, the chaos surrounding the Zaporizhia nuclear power plant is just one example of how a potential disaster could bring devastation to Ukraine and beyond. Europe is also bracing itself for winter with an almost guaranteed energy crisis while the refugee crisis is making itself felt across many countries taking in those that simply cannot return home just yet. And then I have not even touched on the horror of the detention and deportation of over a million of Ukrainians by Russia. Whatever progress Ukraine is making on the battlefield, the dreadful impact of this war will be felt for decades to come.

Markets

The markets are on a true roller coaster and the gains recorded in late July and August were pretty much wiped out over the last few weeks (although yesterday saw a bounce back). It was bad and I would like to present a two-month view of the tech heavy Nasdaq as the key exhibit:

There are too many unpredictable trends at play at the moment: from the uncertainty over energy prices, inflation and rising interest rates to geopolitical pressures. But one major concern is the continued rise in debt levels. If consumers choose to deal with inflation by borrowing to pay for everything they think they should still be getting, we have got a real problem on our hands. Yes, it is tempting to borrow in inflationary times when rates are still relatively low and knowing that you can repay these once the money supply grows again with cheaper dollars, but in the current setting it is probably the last thing we need. We need to trim spending to deal with inflation and go back to basics: cut and save. That will of course have an impact on our consumer demand driven economies, impact corporate results and thus stock market performance. It is hard to see how we can borrow ourselves out of this one without creating another 2008 type of market meltdown.

The only company impervious to all these cycles is of course Apple. The new iPhone 14 presented yesterday is only US$799. If you can’t afford it, put it on your credit card like everyone else. Long on Apple folks.

Liz Truss

Ever since lining up in front of the Houses of Parliament in November 1990 to witness Margaret Thatcher’s final performance in the House of Commons (no, we never got in) I have become addicted to the leadership dramas in Westminster. And so it was this time, as the British Conservatives purged Boris Johnson who in turn had managed to unseat Theresa May in 2019 who herself had succeeded David Cameron in 2016. The latter was the only more regular resignation as a result of the Brexit referendum. May and Johnson however were dispatched by their colleagues in a none too pleasant way. And whatever one thinks of Boris, he delivered an unprecedented majority to the Conservatives, steered the country out of the EU without too many bruises and got the UK vaccinated. No party can afford to dump a winner and no party can survive such internal strife and conflict for long, in particular in turbulent times.

Therefore I doubt that Liz Truss can, within the two years she has before the next general election, unify her party and at the same time address the deep economic malaise that is now enveloping Britain. The act of re-inventing herself as a Thatcherite is questionable, the iron lady’s low tax and pro-business recipe for the 1980s United Kingdom may not work in today’s world. Honestly, I was leaning towards her opponent Rishi Sunak who cautioned against tax cuts in an inflationary environment and who also emphasized far more support for the most vulnerable citizens. We are now going to roll the dice with Truss who has also shuffled her cabinet and appointed loyalists in key positions. Expect a bumpy ride.