Quarterly Newsletter – The Advisor

One of the cornerstones of the past fifty years has been the financial architecture based on the ‘petrodollar’. This is where oil producers sell their product to the world in exchange for US dollars. These dollars are then invested in dollar-denominated assets and markets, explicitly supporting the US dollar as the world’s main reserve currency. Most commodities are also priced in dollars.

Many nations – from allies such as France, to the non-aligned such as India, to hostile states such as China and Russia – chafe under this financial system. The dollar’s dominance is now being openly challenged as the world bifurcates into pro and anti dollar factions.

Read the Spring 2022 Advisor

Lately investors have been wondering about the effects of the US Federal Reserve’s “tapering”, a slowing of its $120 billion per month bond buying programme (Quantitative Easing). QE has added more than $4 trillion to the Fed’s balance sheet, which stands at $8.7 trillion. QE provided unprecedented support to financial markets but the Fed is now reducing its covid stimulus, making the fixed income market jittery. Ironically, tapering could actually be good news for the bond market.

What follows runs contrary to today’s “persistent inflation” narrative.

Read the Winter 2021 Advisor

A Ned Davis Research note published earlier his month was sarcastically titled “Turns out, growth looks like it was transitory – inflation is more sticky”.

The title is the inverse of what the US Federal Reserve policymakers have been saying since March. America is facing its most sustained price pressures since 1990, with headline CPI index up 5.3% in the last year. Bear in mind, the consumer price index is a generalization and not necessarily representative of what people actually pay.

Read the Autumn 2021 Advisor

In the early 1960s, Edward Lorenz, a meteorologist at the Massachusetts Institute of Technology, was modelling weather systems on a computer when he accidently discovered that small changes in initial conditions later produced large changes in outcomes. This surprising discovery became known as the ‘Butterfly Effect’, the “notion that a butterfly stirring the air today in Peking can transform storm systems next month in New York.”

Scientists aim to predict outcomes and then conduct experiments to confirm them. Until Lorenz’s breakthrough, scientists had largely ignored disorderly conditions, such as the turbulence in air or in flowing water, and instead used idealised systems to explain the world. Natural systems can be described – but they do not behave as neatly as idealised. The discovery of the Butterfly Effect encouraged work on Chaos Theory, which postulates that seemingly chaotic systems actually come out of orderly sets of mathematical functions.

Read the Summer 2021 Advisor