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And it’s over. After 17 years of standing pat, the Bank of Japan has finally raised interest rates, to the soft POP of a slightly damp confetti bomb. The end of an era. That the money men will still print $40bn a month to gobble up government bonds suggests that happy hour is not yet over, but the move is likely to spark a slow re-appraisal of options for local investors, who sit on a substantial pile of overseas assets. With yields rising some may be tempted dog whistle those assets back home. Whilst a rate of 0.1% is hardly going to spark a stampede, the repricing of money globally has upended all sorts of tables. Take private markets. When funding rates are almost free, all sorts of crazy ideas get funded. When Central Banks, led by the Fed, started turning the dial, the vista changed. Those who did the funding, wanted to see some profits, a challenge that proved to be beyond many in the ‘ecosystem’. Cue a bonfire. And yet the cold fingered consulting group Bain write, in a recent report, about the now ripe brie of an opportunity to be found across private assets. Sellers abound. Investors across PE and VC need liquidity. The opportunity, so writes Bain, is in secondary funds; funds that take discounted stakes in late-stage growth businesses. Funds that deliver “strong, consistent returns for investors with less volatility.” Say WHAT? They also have a shorter payback period and serve up a “quicker path to a diversified portfolio for investors who are new to private markets.” Now there’s a thing. There are many reasons to buy something: a good-looking founder, a tax break, or – as is the zeitgeist – plain old FOMO, but the ultimate arbiter of future returns is the initial price paid. The business of buying discounted stakes in late-stage growth businesses, when set against public markets, distorted by passive flows and sweating it out at valuation extremes, sits somewhere between very sensible and compelling. Hmm.

Tik Tok means different things to different people. It depends on vintage. To some, it’s the rhythmic backdrop to a carpeted hall, to others it’s a digital addiction, a scrolling diet of cat videos, celebrity gossip and desperate brands chasing elusive, youthful eyeballs. It’s also going to be banned in the US. So, this is sticky. It appears the US House of Representatives, all good people wildly trading stocks during any recess, has voted “overwhelmingly” to approve a bill to ban Tik Tok. Or at least stop it being distributed on home soil. The beef is that it’s owned by Bytedance. Bytedance might not be a familiar name to many, but it is a Chinese internet technology company. The beef then is with China. File under ‘national security’. Urged on, one imagines, by square jawed, slightly sweaty, DoD officials,  US lawmakers have got all het up and demanded that Bytedance sell Tik Tok. All good. Or not. The spat speaks of wider tensions, symptomatic of the shifting geopolitical order. The waning of one empire, the rise of another. When investors speak about the moats and dominant positions of US mega-cap, what is often not spoken about is the rise of China as a major technological player. The rise of an industrial power. 50% of all engineers – in the world – are Chinese. And that percentage is only going up. The challenge to US tech is, perhaps, what’s the issue. And more. See the problems Apple is now having in China. Market share gains by Huawei are chomping away at the company’s once dominant position. One imagines Huawei has global ambitions. Tesla too, is feeling the heat from BYD, and when it comes to the scrappy fight for advertising dollars, Alphabet executives must have been whooping like they do at the Superbowl when the House vote came through. No one likes a competitive upstart. For a long-time China was a good thing for the US corporate. It was a place with abundant cheap labour. Capital intensive functions could be outsourced, so too emissions. Nice. Consumers and profit margins expanded. China though has ambitions, and it’s not to be a low-margin economy. Whilst political issues hog the headlines, the rising economic threat is enough to chill the mojo of any C-suite executive. It should chill the mojo too of investors, those same investors who have piled into stocks, riding the liquidity bonanza of wet-lipped policymakers. US mega cap tech – as commentators now shrill – dominates the index. It dominates most ETFs and, indeed, the wider passive complex. The argument made is that buying the index means you can eliminate security-specific risk. By owning everything, the only risk you take on is what the market does. The problem, the potential kipper to the face, is what happens if the biggest tech ‘winners’ of the coming decade, aren’t in any index? Hmm. Sticky buns all round.

Teeth whistled this week and trumpets went toot-toot as Bitcoin lightly toasted $69,000. Those in, grinned liked cats; those out, muttered about utility and tulips. What appears to have fired up the recent run is the January approval of some spot bitcoin ETFs, launched by those ever in-it-to-win-it sorts at Blackrock and Fidelity. Cue a frantic 60% romp higher as the deliciously controversial medium went ever more mainstream. A ”paradigm shift” panted one breathless cheerleader. What you do with it remains a mystery. For those more inclined to back a store of value that has weathered several thousand years of civilisation, gold too has smashed through a record high. To little fanfare. What drives the price of gold has long vexed observers. Haven status for some, inflation hedge for others. Barbarous relic to many. Perhaps the run up is down to Biden flaring the nostrils and going after Russia’s pile of US Treasuries, thereby putting the willies up overseas holders of the world’s flagship ‘risk free’ asset. Perhaps it’s concerns about stability of the financial system: “Bought for $949 million two San Francisco offices have been marked down to zero”. Perhaps it’s none of those things and, as Western investors dump gold to load up on AI, Eastern buying has stepped in: “Fēicháng gǎnxiè”. Or maybe it’s just all the debt. The trillions and trillions of salty debt. And deficit spending that is by any sober measure, out of control. An artificial E-number that has so sweetened economic growth, to the surprise of many a recessionista . Voltaire mused in 1727 as he stirred his morning coffee, that every single currency in history goes to zero. All fiat currencies become, in his gritty words, “worthless, pieces of paper with dead people on them that no longer buy anything”. Most are finished off by hyperinflation. The crypto fest is getting the bulls horn of the headlines, but what exactly is it that both bitcoin and gold are sniffing out? Easy to ignore, until it isn’t. Like 8-irons and marriage, the riskiest trades are often those that are perceived to be safe, but for some reason, are not. KAPOW. The NFTs of bored apes are also back. Tread softly.

Another day, and another sobering article highlighting the reality of renewable energy. European solar supply chains are going bust. Bankrupt. Those that aren’t going belly up are pausing production, closing factories, and restructuring debt. Moves of a strategic nature which tell of an industry on the rack. The blame burger is cheap imports from China, where the whole industry is fuelled by subsidised coal. Hence the cheap imports. That Europe’s gleaming solar farms are built on subsidised Chinese coal is a further ironic twist to the whole affair. And its not just solar. Wind too has had its high-profile whoopsies, and now certain voices are whispering that Electric Vehicles have peaked. That’s it. Mass adoption is not going to happen. EVs are supposed to reduce carbon emissions, but the whisper is that the accepted wisdom is wrong. Plain wrong. Replacing the old rusty Renault 5 with something shiny and battery powered, may increase carbon emissions. Say WHAT? It’s all down to what emissions you include. How you slice the data. If there is any reliable data. It’s controversial and not good suburban dinner party chat, but the truth often is. It is argued that the energy consumed in all the diesel powered digging up and manufacturing of an EV means that, any carbon savings of silently ghosting the streets of the Mayor’s ULEZ zone, largely vanish. And look at Norway for an example of what happens when subsidies, which appear to be the only way of getting consumers to trade up from the rusty Renault 5, for an example of how it plays out. Not only are the government’s finances under increasing pressure and subsidies being withdrawn, but also despite widespread adoption, EVs don’t appear to have had much impact on either demand for fossil fuels, or carbon emissions. It’s a vexing issue, and wildly unpopular, but with the likes of Hertz cutting their global EV fleet on soggy take up, it is something at least worth thinking about. The heater may not work but perhaps, in the interest of the planet, it may be better to keep the Renault 5 on the school run. For people in the West, long accustomed to a warm and comfortable standard of living, the only sure way to reduce carbon emissions is to change. Consume less. Travel less. Upload fewer cat pictures. But that too, is wildly unpopular.

Coal. A word that is likely to make any politician tuned to the zeitgeist to break out in hives. Coal is bad. A filthy word from a filthy, bygone era. And yet, reality has a different cut. Global coal demand is at a record high. A record high. And only going up. The International Energy Agency, a body that seems to lose credibility with every forecast it makes, reckoned that coal demand was going to burn through 8.5 billion metric tonnes in 2023. It doesn’t really matter what the number is, what matters is that despite the billions and billions of increasingly worthless fiat currency being flayed on renewable energy, the world is still burning massive amounts of the dirtiest of dirty fossil fuels. Whilst coal use in the US and Europe is falling, the likes of India and China are shovelling the stuff into the furnaces at an unprecedented rate to help meet the needs and expectations of a power-hungry population. As such the IEA, once again, appear to have fudged out their peak demand projections to 2026 when global demand will – close eyes and hum – then roll over. In the grip of a mild winter and ample gas supplies, the TV news people no longer warn in shrill tones to layer up in woolly jumpers, but the energy issue remains a sticky political bun. One of the consequences of the re-ordering of supply lines after Russia went big on Ukraine, was that Europe sucked in US LNG to meet its own needs. The problem is a lot of this LNG came from diverting ships bound for Brazil, South Korea and China. By paying up, Europe basically forced other countries to seek alternatives. Hello COAL! Having been lectured over how energy policy should be shaped, it is unrecorded what leaders in the ‘global south’ said to each other when Germany woke up to its massive air shot on energy supply and its politicians, at the first squeaky bum moment, gave the order to fire up the coal furnaces. Burn baby burn. As the developing world develops, demand goes up as, without energy, there is no growth. None. For some it goes even deeper: energy is life. For too many politicians, it seems, when the rubber hits the road, the cheaper that energy, the better.

KABOOM. One upbeat earnings call later, and the market cap of chip darling ARM balloons. Skyrockets. Indeed, it is almost triple the IPO price last September and if the company was listed on the FTSE it would tuck in somewhere behind the index heavy weights Shell and HSBC. Which is why, perhaps, when the microwave when ping, it listed where it did. Investors pay up. It does, though, leave the old-fashioned valuation metric of price/earnings, looking hot. Indeed, too hot for a small, but increasing number of short sellers, who are circling the pit reckoning, perhaps, that whilst the company dominates its patch, there are questions whether generative-AI really is going to be such a tizzy-lizzy for the share price. It is whispered that ARM’s power efficient chip design is too slow for gen-AI training. Cue much swallowing and wide eyes all round. It might be good for other things but given all the R&D that’s buzzing about in labs across the world, there are likely other options in the pipe. Read Ed Conway’s excellent Material World and it’s shockingly clear that the current supply chain for high end chips is too fragile for comfort. Hence all the political naval gazing. It’s also extraordinarily energy and time intensive to take quartz rock through to finished silicon chip. And it’s all largely reliant on billion dollar fabrication plants in the geopolitical hot potato of Taiwan. FORE! Somewhere, someone is likely working up chips that are cheaper, use less energy, and can be made in the garden shed. Some, if you read the message boards, are already in play. When a TAM, or Total Available Market, is as big as this, the competition get hungry.

The fire that ripped through VC assets, sparked by the hunah-hunah back to a rate regime that choked the exuberance of those who liked to throw money at anything with a smile and a story, has left charred remains. Business models have been torched. Dreams popped. Egos bruised. And left many investors queasy at what return they will get, if any. And yet, those that survive will thrive. Green shoots are starting to grow. Take Fintech. A super-sexy thematic given the opportunity to disrupt traditional incumbents whose tech stack might still feature a line of Commodore 64s in the basement. As rates ran higher and inflation bit hard, many business models struggled, and valuations hissed air. Sentiment soured. Into the mix though, operators adapted, evolved, and sit now on the cusp of a boom. The opportunity to disrupt remains as compelling as ever: from Open Banking to Gen AI to up-for-it ‘tech enablers’. A Fintech ‘super-cycle’, say analysts, is underway. The dislocation across the piece has left distressed sellers of high-quality assets and whilst public markets continue to dance to the tune of the Mag-7, or 6, or whatever the latest is given bloated valuations and de-minimis growth, many fintech opportunities, and fintech opportunities in the UK, are for sale. And for sale, at deep discounts. Those with the agility and chutzpah to go shopping, will be generously rewarded.

For those following the goings on in the uranium space which, given the dearth of coverage in the mainstream media suggests not that many, recent events have been, well, quite something. As nations go all in in nuclear, last Friday’s announcement by industry heavyweight Kazatomprom that they don’t have enough to fulfil their obligations, put the cat right in amongst the pigeons. The problem is that the world’s largest producer has promised all sorts of people deliveries that they, now, cannot pony up on. Spot prices surged. Like properly surged, smashing through $100/lb and kept on going. The reason is the knock-on effect it’ll have. Not only will Kazatomprom likely now have to wade into the spot market to secure promised lbs, but so too all those expecting delivery. All the JVs and partners, and hangers on. They too are likely thinking they better get busy, lest they walk in one morning to a curt email from their man at KAP saying they’ve missed out. DHL aren’t coming anymore. And what about all those nuclear fuel buyers at the utilities who have deals with KAP and all the other partners scattered across the world. Are they going to carry on with a leisurely turn through the Racing Post as prices surge further? Not likely. Nuclear utilities can’t afford any disruptions to their chain of reactor fuel conversion and enrichment contracts across the fuel cycle. So, they too will be looking to avoid what would be a very sticky conversation with the line manager by getting a jig on. Analysts have been writing for some time about the chronic supply / demand mismatch in uranium, talking of a ‘chaotic’ move to the upside. Let the chaos begin.

Last Friday the confetti bomb went off. Bulled up by suggestions across financial media that Central Banks had stuffed the turkey and glazed it in honey, retail money poured into the SPY, the $478 billion SPDR S&P 500 ETF, Wall Street’s oldest and most venerable passive product. The buying was off the charts, the highest one-day splurge on record. The context of the festive brouhaha of buying is laid bare by the pom-pom wielding strategists at Bank of America who point out that private client portfolios are basically all-in. Back in 2009, when the gun for the current bull market fired, equity allocations were a shade under 40%. Today, they are 60%. Stir in some beta analysis and the model spits out the startling statistic that portfolios are two and a half times more aggressive today, than they were at the bottom in 2009. And that exposure, as whispered by the media, is largely concentrated in just seven stocks. Diversification, like letter writing and opening doors for others, appears to be lost on the app-tapping investors of the day. Given all the war, the geopolitical grand standing, the re-routing of tankers, the hand-over-fist selling of US Treasuries by the likes of China and Japan, and the blizzard of other issues – notably prices that are still going up, albeit at a slower pace – it is quite a thing that stock markets are shuffling into year end with ATHs in sight; leaving strategists little wriggle room other than to forecast the customary 10%-ish upside over the coming year. Keep buying. Given all the eggnog spilling on shoes then, there is a temptation to buck the ‘narrative’. Gazing into the crystal ball, the Gazette suggests that 2024 will see oil barrel through $100, inflation to surprise to the upside, equities to finish lower and the deluge of issuance out of the US Treasury to scatter the pigeons. Energy and commodities, specifically precious metals as the bonfire of fiat debasement continues, will run hard. So too, uranium. All are largely ignored by institutions still labouring to align their principles to a new agenda. The US and the Mag-7 have peaked, letting EM and small caps off the leash. Governments will keep spending like glassy-eyed sailors, to the benefit of all things ‘infrastructure’. De-globalisation adds chocolate sprinkles to the cake. And diversification – in equity markets – will be back in vogue. Courtesy of a resplendent 15-year bull market, alluring marketing material from fee-squeezed money managers, and bragging in the spike bar, many portfolios will be exposed as being far too concentrated. More so if the passive bubble, perhaps the biggest of all, goes POP.

Happy Christmas.

*YELLEN: NO REASON FOR INVESTORS TO FEEL NERVOUS ABOUT US DEBT, ran the headline. Well, if investors weren’t nervous before, they are now. The sober person does not go round telling everyone they are sober. The drunk does. Fast on the headline was the all-out dovish message from the Federal Reserve, sparking a chorus of alleluias and a buying frenzy of risk assets pushing stock markets to within a whisper of ATHs, leaving many an index in what technical analysts whisper as being ‘extreme overbought’. Perhaps the good news of the end of the rate cycle is already in the price. Or perhaps, not given many a Wall Street cheerleader is out with some aggressive 2024 year-end targets that may or may not have been plucked out the thick, steamy air of the team Christmas lunch. Time will tell. Whilst inflation appears to have eased, albeit leaving those who buy groceries or other staples of life, feeling a little out-of-the-loop; some argue that the Fed are done hiking rates as a debt-riddled economy can’t handle it. The goose was starting to crisp too fast, hence the high-style 180. Jay Powell even seemed to open the door to a return of QE, saying that if the Fed cut rates due to a weakening economy, continuing QT would not be ‘appropriate’. Indeed not. That markets historically top out around the first-rate hike adds further seasoning to the broader mix, with bets running hot that the Fed will be cutting five or six times into 2024. Petrol. Fire. All the while Warren Buffet has quietly been shuffling the deck chairs and now sits on the largest cash position in Berkshire Hathaway’s history. Grown-ups aren’t supposed to believe in monsters, but it sure feels like there’s something hiding in the attic. The case for owning hard assets becomes ever more compelling.