The origin of the phrase ‘may you live in interesting times’ is disputed but at present, there can be no doubt that we are. The U.S. removal of the Venezuelan president illustrates the geopolitical status quo has well and truly been upended. Trump’s assertion that Maduro’s ‘narco terrorism’ is the reason for his arrest is clearly nothing but pretence. It is all about oil and the president’s wish to increase supply in order to lower the price, thus minimising the inflationary pressure likely resulting from a weak dollar and a much more compliant Federal Reserve. Let’s hope the outcome, legal or not, is better than the U.S.’s last incursion into an oil rich nation via a suspect alibi. As for Greenland, what previously looked fantasy, now appears more than possible.
All this poses questions, not just for the price of oil but global interest rates and commodity prices in general. The price of gold rose by more than 60% last year, the result of its safe haven status set against the background of indebted governments, sticky inflation and the increasing appetites of countries such as China and Russia to not only curtail their use of the dollar but also encourage their trading partners to do likewise. Greater trade frictions will likely be inflationary, as will the growth of regional trading blocs in response to retreating globalisation.
There has been no ‘normal’ recession for the better part of 20 years, the result of unprecedented interventions by governments and central banks. This reinforces our belief that far too many investors are being complacent regarding the true levels of risk they readily assume. It simply strengthens our intention to continue focusing upon solid businesses, possessing proven business models while carrying valuations that are not excessive.
