Philip.James@beckettinvest.com, Author at Beckett Asset Management

30/05/2025 – Deficit Attention Disorder

Philip.James@beckettinvest.com12 June 2025

Deficit Attention Disorder

Extensive tax cuts were always going to be a potential positive element of a Trump presidency. Where investors may have been a little naïve is around how these tax cuts are funded, especially given there’s long been fair arguments that US borrowing is unsustainable. Debt rating agency Moody’s seems to agree as they downgraded their rating of US debt from their top rated Aaa to one step down, Aa1. Whilst markets haven’t been particularly rattled, this downgrading occurring at the same time as the Trump administration publishing “One Big Beautiful Bill” (it’s official name), does bring the sustainability of US borrowing into question.

It feels like AI was designed for this moment – here’s a flavour of what Chat-GPT picked out from the 1,116 page behemoth bill.

Extension of individual income rax rate reductions.
No tax on tips or overtime.
Introduction of tax-exempt ‘MAGA’ accounts.
Expanded Health Savings Account flexibility.
Phased repeal of various clean energy related funding. (The majority of which doesn’t stop until 2032)
Increasing mining of offshore and Alaskan reserves.
Reduce regulation on fossil fuel extraction.
Funding for more detention centres and deportation flights.
Removal of 10% tax on tanning services. – What?
Increasing the debt limit allowing for further borrowing.

Our reaction to the majority of the bill can probably be labelled as ‘disappointing but not surprising’, other than maybe the tanning bit, that is surprising, perhaps that’s how he gets his peachy skin tone? More importantly, the current proposals are projected to add over $5tr to the national deficit. There are rumours that the Republican party are divided over whether to prioritise tax cuts or budget cuts, which is relevant given the bill needs to pass through both chambers of Congress and cannot be implemented as an executive order.

Market reaction has so far been fairly limited but this is still a developing situation. There are some early signs that investors might be thinking ‘thou shall not push through unfunded tax cuts’, as they did for Liz Truss in the UK. The latest auction of Treasuries was noted by numerous market commentators as particularly weak and bond yields have been rising, a sign that investors are demanding extra reward for the deemed risk.

In February we trimmed our exposure to Treasuries in the Fixed Income fund as we felt and continue to believe that a number of Trump’s policies are inherently inflationary in nature. Consequently, we believe that it is likely interest rates reduce to a greater magnitude in Europe and the UK.

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16.05.2025 – Special Relationship Shaken, Not Stirred

Philip.James@beckettinvest.com21 May 2025

Special Relationship Shaken, Not Stirred

At the beginning of April on ‘Liberation Day’, Trump announced widespread tariffs with the UK faring relatively well compared to the more punitive tariffs on other nations. As expected, we’ve seen a swift scramble to make trade deals with the US, and the UK has managed to reach the front of the queue. But is the new trade deal particularly meaty or a cheap political win?

Sifting through the rose-tinted, political brown-nosing between Trump and Starmer, the main headline is that 10% tariffs on imports from the UK are here to stay. It feels as though the UK negotiators haven’t put up too much of a fight, given that the hand they were initially dealt wasn’t too bad compared to the rest of the world – although clearly it would be deeply unpopular to say this publicly. The finer details are yet to be ironed out but as at the time of writing, the trade deal primarily focuses on agriculture, steel and automobiles.

Trump claims ‘the best beef in the world’ will be making its way to British shelves (I think the Japanese and Argentinians might have something to say about that), with Rolls Royce aircraft engines as well as UK manufactured cars heading the other way, still subject to a 10% tariff, albeit significantly less than the 25% minimum currently imposed on other nations. Post announcement both leaders were questioned about industries not covered by the deal such as media. Trump’s response was that “James Bond has nothing to worry about”, I’m not sure what that really means but it’s fair to say that the US-UK trade dialogue may well continue.

Despite this being dressed up as positive news, tariffs are still higher than they were at the start of the Trump presidency which will lead to rising costs and create a headwind for global growth. The positive news to be had is that whilst no other US trade deals have been announced yet, the UK looks set to be more favourably treated than many other nations and jobs at British steel and UK based auto manufacturers look much safer than only last week.

Perhaps most importantly, the deal comes at a time where both political leaders are looking to halt the decline in their approval ratings. For Trump in particular, many of his supporters associate him with a strong economy and his promises to bring down inflation. Approval ratings and polls would suggest that voters are losing patience with both of these subjects but with midterm elections coming around next year, it’s probable that Trump’s actions are going to have to refocus on pleasing the electorate in order to appease his Republican colleagues.

For now, we remain very cautious about the outlook for the US. We are likely to maintain our underweight position given the destructive effects of tariffs are not yet showing in the hard economic data points. Elevated levels of volatility are expected to continue given there are many trade deals yet to be discussed, and it is reasonable to expect that not all negotiations will go swimmingly and possibly not before the end of the 90-day tariff pause in July. Despite these ongoings, the team are alert to the prospect of US policy swiftly turning positive in the second half of this year given the midterm elections next year and we may well take advantage of extreme volatility to reduce our underweight position.

02.05.2025 – Is This Another Cunning Plan, Baldrick?

Philip.James@beckettinvest.com8 May 2025

“Is This Another Cunning Plan, Baldrick?

Yes… no… well… I thought it was, but now I’m not so sure.”

Trump’s cunning plan to cut the US’ trade deficits looks to have backfired as bond investors appeared to lose faith in the government’s financial strategy. Following ‘Liberation Day’ 10-year Treasury yields initially dropped due to concerns around slowing growth but very quickly yields rose from 3.9% to 4.4% in just two days. Either investors were raising cash following losses on the equity market, or because they were losing faith in the sustainability of US debt, both are far from ideal.

The President now claims, “countries are kissing my ass wanting to make trade deals”. Whilst this is quite peculiar language for a politician to use, it feels as though most countries will likely now make trade deals with the US. What those deals look like is very up in the air, but it’s reasonable to expect Trump to be seeking deals that are at least optically good for America and can be spun to the American public as great deals, deals better than the world has never seen, unbelievable deals.

Whilst the 90-day pause on the more punitive tariffs is a positive, huge tariffs remain against China and we shouldn’t gloss over the fact that 10% on the rest of the world is still a tax increase on American imports. The outlook remains uncertain, and our view on the outlook for the US specifically remains negative. We have further reduced our allocation to the US within the Blenheim Overseas Equity fund, taking advantage of the short-term but significant near 10% bounce the US market had following the 90-day pause announcement.

The Midas Touch

A lot of assets have turned to gold in recent weeks. Treasuries, the Dollar and stocks have all seen selling pressure with investors turning to non-US orientated safe havens.

Arguably gold remains the ultimate safe haven asset and investors are channelling their inner magpie, flocking to the shiny metal. At the time of writing the price has risen over 25% year to date and over 40% in the previous 12 months, monumental moves for what can sometimes seem quite a dull asset but it’s times like these where its diversification properties can make a significant difference in portfolios.

We can’t claim to have foreseen the recent politically charged market dynamics at the time but from October last year we began building a gold position in the Alternatives fund. This was initially a small holding but by the turn of the year the weighting reached the approximately 7% position that it is today. Without a doubt, gold has played a leading role in the Alternatives fund’s 3% year to date return and more importantly, helped to minimise the drawdown of the portfolios.

As far as possible we’ll always seek to replicate asset allocation choices within the Ethical portfolios, but commodities and mining often comes with their fair share of ethical issues. Our chosen method of gold investment is through the Royal Mint Responsibly Sourced Physical Gold exchange-traded commodity (ETC) which is backed by physical gold and held at The Royal Mint in Cardiff. Part of their process is to source as much gold as possible from recycling, including from old mobile phones, which is ultimately much less carbon intensive and more ethical than taking gold out of the ground, meaning that we are able to hold this particular gold investment in the Ethical portfolios.

07.04.2025 – Politicians Chatter as Debt Limits Shatter

Philip.James@beckettinvest.com8 April 2025

Politicians Chatter as Debt Limits Shatter

As previously promised, Rachel Reeves’ Spring Budget was a bit of a non-event as far as markets were concerned with asset prices barely blinking in response. I suspect the autumn update is likely to be much juicier but the Chancellor is yet to spill the beans on what it might entail. Speaking of spilt beans, the US political circus continues but I’m sure Vice President JD Vance and Secretary of Defence Pete Hegseth will be delighted to hear that in ‘pathetic freeloading Europe’, Germany appears to have found a money tree.

Now set to loosen its fiscal policy, reports out of Germany are suggesting a spending increase of between €500 billion and €1 trillion over the next 12 years. The consensus view is that the additional spending will be split roughly 50:50 between defence and infrastructure. This news has been very well received by the stock market and more importantly, the bond market appears quite content to stomach the additional bond issuance too – see Kwarteng/Truss for what happens when the bond market won’t stomach new debt issuance.

So what’s the investment play in response to the increased spending? Buy defence stocks seems an obvious answer but it’s not quite that straightforward. Yes, defence companies will make a LOT of money in the short term but can we, or anyone have a strong view on the level of defence spending on an ongoing basis or which companies will win the government contracts? Probably not. Buying something for its short-term supernormal earnings with an unclear long-term outlook feels like more of a punt than an investment to me.

Where we can get excited relates to the secondary effects of greater defence spending. There are many, many components that will go into the production processes within defence companies as well as the prospect of greater employment and salaries may well rise too. Hopefully you can see that this is a growth story that has the potential to bleed into many industries beyond defence and so rather than taking what could be called a punt on inflated short term earnings, we have preferred to increase our allocation to Europe as a whole. Although the defence element is what grabs headlines, it’s important to acknowledge that the German government are also targeting greater spending on energy security with a keen focus on renewables as well as digital infrastructure and transport.

Trump has now imposed the extensive tariffs we’ve been waiting for with very few countries left untouched. Interestingly, some tariffs have been imposed specifically on regions that aren’t countries in their own right which is a little strange and includes the Heard and McDonald Islands which has a whopping population of… zero people and a few thousand penguins.

Since the end of November 2024, the portfolios have been more defensively positioned with a significant underweight to the US as we favour Europe and Asia. Our view is that if the tariffs are quite punitive, this will significantly impact US growth and inflation. Tariff induced inflation is likely to be transitory and we may well find ourselves in a few months talking about how growth concerns in the US are driving markets.

Recessionary fears may well ultimately force central banks to cut rates more aggressively and interestingly bond markets have seemingly started to anticipate this.

Although it’s hard to feel anything particularly positive about the US right now, we must remember that Trump campaigned on a mandate to cut regulation and taxes. Should these ‘promises’ come to fruition then we may end up talking about a very different outlook but can we or anyone say when that might happen, absolutely not. Consequently, we have conviction in our decision to be materially underweight to the US but with the counterbalance that it’s possible for market dynamics in the US to change incredibly quickly. With this in mind we continue to monitor developments diligently and we are prepared to change our mindset from capital preservation to one of capital appreciation as and when we feel conditions are right to do so.

The BAM portfolios continue to maintain an overweight to Europe and an underweight to the US.

We acknowledge that we are now in an uncomfortable period of time for investors where levels of apprehension will be elevated. However, history has shown that keeping a calm head and maintaining a considered approach to investing often leads to the best possible outcomes.