Reasons for cheer

Doomscrolling has never been easier. It would appear our fellow humans are determined to wipe each other out, either one by one or en masse, where capability permits. Hate, violence and, often wilful, misunderstanding seem as fashionable as ever. Meanwhile, we savage large tracts of the planet we rely on. What hope can there be for such a species?

Victims of success?

Part of the problem is perception. We, and our ancestors, have so thoroughly solved many of the problems of daily existence, that the wondrous has become mundane.¹ It is hard to still relish the fact that smallpox isn’t a thing, or that food, entertainment, and clothing previously only available to royalty is now abundant. We fogies bemoan social media, mobile phones, and other hell-spawned technology, but forget the difficulties of staying in touch with loved ones in another country of yesteryear.

This is not to suggest that we should be entirely satisfied with our moment of course. That poverty exists at all when we have the capacity to solve it should not be acceptable. The deadlines on the environment are real and alarmingly near. Meanwhile war, violence, and hate are surely never the answer, however much they scratch a primeval itch.

Right now

Investors are currently grappling with a complex brew. Hardening odds of the return of former President Trump are front and centre following the shocking scenes in Pennsylvania. A tendency towards lower taxes, tariffs, and lower immigration all point in a similar direction if you are a bond investor – more inflation risk. There is an answer for that, and it is likely steeper yield curves – more compensation for would-be longer-term investors, to help with the attraction of lending to the US government.

One interesting and quite unexpected market ripple has come in the sharp bounce in small cap stocks this week (Figure 1). There are many ex-post explanations doing the rounds – from the potential effects of a de-regulatory agenda to positioning. The lesson for us is a familiar one. Beware leaning too hard on the industry’s list of ‘Trump trades’. If the former President does manage to be the first since Grover Cleveland to return after a pause, he will return to a very different macroeconomic backdrop, with investors exhibiting quite different sensitivities.

Figure 1: Small cap rising

Source: FactSet, Barclays. Note that past performance is not a reliable guide to future performance.

However, before all that, inflation is looking increasingly well-behaved and policy rate cuts are coming, likely in September. This week’s retail sales data paint the all-important US consumer in still ebullient shape, certainly able to cover for some of the currently ailing parts of the economy. Besides which, the medium-term outlook for the economy is brightening considerably. This has little or nothing to do with policy and everything to do with a new batch of productivity-enhancing technologies and surging investment in research and development.

China

Chinese authorities have plenty on their plate, even before contemplating an ever more unfriendly global trading environment. The third plenum is where China’s giant bureaucracy focuses on economic reforms. The importance of this administrative gathering has waxed and waned over the years. The 1978 edition saw Deng Xiaoping tilt the economy towards market-oriented reforms and a carefully phased opening to international forces. As expected, this episode has delivered less seismic proposals.

China’s economy remains precarious, with the deflating property bubble the most pressing issue for policymakers to wrestle on a long list. Nonetheless, amongst all the noise and headlines, there remain attractive opportunities for patient, well-informed, and clear-sighted investors.

Investment conclusion

Perspective is hard to find in the world we live in. The availability of horror and outrage is relentless, almost inevitably so given that around 7% of the people who have ever lived are alive on the planet today. The isolated lives we once lived, where a rural existence would perhaps mean encountering people who lived within a 10-mile radius and no more, are long gone. We can now, almost instantaneously, watch the loves, hates, and amusing pets of almost everyone on the planet.

Many of those people now enjoy the kind of individual freedom only the kings and queens could have sampled in previous centuries. There is no requirement for everyone to use that freedom wisely. Or even to use free speech to say kind things about their fellow humans.

However, to foreground only the negatives misses the corrective trait in our species. We have long demonstrated an ability to solve the problems that have accompanied our incredible ascent. It can take time, and often many missteps, but history ultimately points to a justifiable faith in our fellow humans. The more of us there are, the better life has become.