April 19, 2022

FROM THE CROW’S NEST:
ACCELERATION ANXIETY

by Jeffrey R. Miller, CFA

My drive to the office appears more treacherous by the day. Whether it is a small compact car or a semi-sized SUV, drivers are exceeding all limits and often appear in anger mode. In my own defense, I have not become the doddering old guy, I maintain a fair 3-8 MPH over the limit. 

I think our driving habits are a reflection of increasing angst in a world seemingly gone crazy at times. As the pace of change accelerates, human construct remains relatively static. Call it stress, cognitive dissonance, or information overload, it just seems to grate on our nerves, resulting in a scary commute.

There is a lot to consider. The war in Ukraine is an immediate concern, with inflation, the erosion of standards of living, pandemics, all following close behind. These are all symptoms of the great technological and geopolitical shifts which impact how we must look to the future, and not objects in the rear-view mirror.

An emerging trend more frequently discussed in the financial media is deglobalization. When Nixon went to China it accelerated a process where whole industries were relocated to lower cost-of-production regions. For nearly 50 years the industrialized world grew at a steady pace, while the developing and emerging world worked hard to catch up. With some hiccups it was a remarkably stable trend in one direction.

This process is in reverse as we move from a US-dominated monopolar world to a multi-polar world of US, China, Russia, and Europe. Dependence on traditional alliances are weakening, while our greatest rivals each seek dominance in their own way. As for Russia and China now being BFF’s, let us not kid ourselves. They are both out for themselves.

This has great implications for how we invest going forward. Scarce resources will be more aggressively competed for, regional self-interest will grow, and global trade will likely moderate. In the US, manufacturing is being repatriated and technology will be more aggressively protected. Electrification of transport and production is creating whole new industries. This is neither good or bad—it is the reality of a changing world. The increase in competitive friction only serves the common angst.

Our efforts stay focused on the forward view to identify the appropriate investment opportunities for our clients and seek to profit from them. Labeling an investment as either US, Asia, or European is less relevant now than considering all investments as either domestic or multinational. According to Goldman Sachs, 29% of S&P 500 profits were derived internationally as recently as 2019.

When balancing risk versus return in today’s world, we see non-US risks increasing. This explains a continued flow of funds toward the US. It was announced two weeks ago that a Vietnam-based auto company will be building a US $4.0 Billion electric vehicle battery plant a few miles south of Raleigh. I didn’t even know there was a Vietnamese auto company, but they must think the US is a worthwhile place to expand.—Jeff Miller

Nothing contained in this post is intended to constitute legal, tax, securities or investment advice, nor an opinion concerning the appropriateness of any investment, nor a solicitation of any type and does not guarantee future results. The information contained in this post should not be acted upon without specific legal, tax and investment advice from a licensed professional. Past results are not indicative of future performance.