News » Has The Ugly Contest Just Got Uglier?


Has The Ugly Contest Just Got Uglier? 

Skerritts View - December  2016

The ugly contest appears to be a recurring theme in our monthly bulletins, having featured in the last two and now making its hat-trick appearance, but with the US election result one has to wonder whether the contest just got uglier.  This is not taking sides as to the wisdom of the result (unlike many advocates of democracy, it seems, we are happy to believe that the majority are not unintelligent, gullible idiots) but more of a comment on the possible consequences of what is clearly, now, a path to deglobalisation.

Unlike most commentators, we did not see the US election result as a foregone conclusion [“Clinton may want to hold on to her deposit for the removal company for a few days yet”: Professionals’ View November 2016] and our clients have benefitted from our decision to back our belief, which we voiced last month, that “the perception of higher interest rates will push the Dollar higher, in conjunction with a depreciating Yen” to the tune of 22% since the election result was announced, at time of writing. This follows our profitable call back in June that saw us net a 60%+ profit in two days’ trading from our short position on Sterling v the US Dollar at the Referendum date.  In short, we think the unthinkable and ignore what the mainstream is telling us to believe. It continues to work well.

So from an investment perspective, what does a Trump victory mean and how should we position ourselves for the coming months?

What Is Deglobalisation?

The red line that appears under the word “deglobalisation” as I type it suggests that my spell checker doesn’t recognise the word, which is not surprising as it is a phenomenon that is new to us all and will shape our world over the coming decade and more. To understand what it means requires an understanding of what, in a nutshell, is meant by globalisation. Globalisation is the free movement of goods, capital, services and people in its purest form. Deglobalisation therefore is the reversal of this process. Just as globalisation has not happened overnight, neither will deglobalisation be a flash in the pan. What is surprising is how quickly it appears to have become such an issue for a number of electorates. How has this happened?  We have referred previously to the line in the Monty Python film, The Life of Brian, where the question is asked, “But what have the Romans done for us?” It is the complacency of the political elite that has failed to answer the same question on globalisation.

Is it a coincidence that non-career politicians such as Nigel Farage and Donald Trump have had such an impact in the short term? Almost certainly not. Most of the career politicians around the world see globalism as a natural creed, failing to recognise that it is the formation of their own subculture that has disaffected the people that they are supposed to serve. As Peter Berezin of BCA Research succinctly puts it, “today’s cosmopolitan elite attend the same schools, read the same books, enjoy the same movies, eat at the same restaurants and, in most cases, converse in the same language: English. They are as much at home on the streets of Manhattan as they are on the streets of London and Hong Kong. However, put them in Cynthiana, Kentucky and they become a fish out of water. In short, they are multicultural only in the narrow ethnic sense of the word. In all other aspects, they are the same tribe”. Together with the explosion in technology, and in particular in social media, people have been able to live in their own social bubbles which has seen the fraying of the cultural bonds that bind society tighter. In other words, the other tribes have found a voice that allows them to answer back.

Consequences of Deglobalisation

Many of the consequences will turn out to be unforeseen, but we can expect a path that looks a bit like this.

In the US the stock market has rallied sharply in the short term, but we’re not expecting this to be a new momentum trade.  On the other side of the coin, the bond markets have tanked, probably signalling the beginning of the end of the 35 year bull market in bonds and something that has been long expected. Quite how “low risk” portfolios will look if the markets extend their rout is anyone’s guess but we’ve been warning about this phase for some time now. It is unusual for a big bond sell-off not to be followed in a further sell-off across other risk assets as well.

If we are at an inflection point, we can expect a bout of extreme volatility at some point as markets attempt to re-price assets that have inflated during the period of globalisation. There have been numerous warnings about the rise of passive investing and, while we use passives ourselves and are keen advocates of them as well as good, actively managed vehicles, we expect there to be some major casualties as some passive funds are found to be vastly over valued in a new era as a consequence of investors buying various indices based purely on cost rather than the underlying valuations of the assets making up a particular index. This could be most acutely witnessed amongst the relatively recent “smart beta” universe.

A stronger Dollar and increased protectionism will not be good news for the huge multinational conglomerates that depend upon free global markets. Over the coming months and years, the tide could turn in favour of the more domestically-focussed, currency-agnostic companies that are found in the more locally consumer-driven world of the small and mid-cap sectors. The same backdrop scenario does not bode particularly well for the export-dependent, Dollar-affected economies of many emerging markets.

We will continue to invest in long term sectors such as cyber security and robotics and automation as we don’t see these themes going away any time soon. In fact, it is the continued growth in robotics and automation that could ultimately lose Trump much of his core support within the blue collar workers of the Rust Belt. It’s all well and good blaming immigration for the loss of jobs and flattening of earnings expectation, but the reality is that a growth in technology and automation has had a far greater effect on the manufacturing sector in the US, as well as it will continue to across the globe. How you answer the “what have robots done for us?” question in the future will be an interesting one.  The promise of building a wall to keep them out probably won’t wash next time around.

It will be an interesting ride, that’s for sure, and one which will be distinctly uncomfortable from time to time. Quite how it all turns out, no one knows, but then every day since the global financial crisis in 2008 has been a day further into the unknown. Oh, for a hindsight fund. We’d be 100% invested in it.

Sources - BCA Research November 2016

These are our views, as always, and don’t constitute advice in any way.

The value of investments can fall as well as rise and past performance is not a guide to the future.  The content of this publication is for information only. It does not represent personal advice or a personal recommendation, and should not be interpreted as such. Please do not act upon any part of it without first having consulted an Independent Financial Adviser.

Established in 1990, Skerritt Consultants Limited is regulated by the FCA – number 163291 and is a MIFID firm

Skerritt Consultants, Skerritt House, 23 Coleridge Street, Hove, BN3 5AB. Tel: 01273 204 999

  • Privacy Policy

  • The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren't able to resolve themselves. To contact the Financial Ombudsman Service please visit