Here we go again. The “sell America” trade that cropped up occasionally last year is back. In the days since President Trump’s fresh antics on Greenland on Friday, the dollar is down, Wall Street is down, alongside equity markets everywhere, and US Treasuries have sunk — sending the cost of US government borrowing to its highest since last September.
The only things that are up are the traditional safe-haven assets, gold, and the Vix — a measure of expected share market volatility known as the fear index. It pushed past the 20 level early on Tuesday from less than 16 on Friday. That reflects medium-level anxiety. For comparison, it is a fraction of the peak of 52 reached in April last year when Trump delivered his seismic Rose Garden economics lesson, or the 66 reached when Covid-19 stopped the world in March 2020.
The surprise for some is how little markets have been rattled by the latest flurry of outpourings from the White House. It’s remarkable that the threat to the survival of Nato has so far had so little impact.
Traders seem to be assuming the stunts, insults and petulant jabs are just more of Trump’s blustering stock-in-trade. It is perfectly possible that by the time he leaves Davos on Thursday, a bone of some sort will be offered to European leaders and a kind of calm restored.
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Investors have learnt the hard way that taking Trump at his word can be very costly. Those who panicked or hedged after the threats last April were badly burnt, missing out on gains as Trump softened his positions and markets bounced. The Taco trade (Trump always chickens out) has been the way to bet.
Overlaying that, however, some institutional investors are pulling back a little from America, or at least spreading their bets wider. Pimco, one of the biggest bond investors in the world, said last week that it was in the midst of “a multi-year period of some diversification” away from US assets. Some analysts have wondered whether Europe could somehow use its gigantic holdings of US Treasuries ($8 trillion or more, by one measure) as a bargaining chip, weaponising capital in some way. That would be difficult. First, the holdings are held mostly by private insurers and pension funds, not governments. Second, any significant retreat would hurt investors themselves, pushing down exit prices.
Europe’s big institutions are not about to abandon the US as their favourite investment destination. It’s simply too important and with an unmatched track record. But it is certainly giving investors unease: red flags such as the president’s endless bullying of the central bank chief, the public humiliation of business leaders who don’t toe the line, and pockets of civil unrest (Minneapolis) would make them think twice if it were any other market.
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US exposure is now “becoming an increasingly uncomfortable contradiction” for UK pension trustees, the chief investment officer of one big pension fund adviser, Isio, said. One silver lining is that some adverse movements in markets could be the very thing to help rein in Trump, as they did last April. A more abrupt hiccup in the US Treasuries market, for example, or a more serious dive on Wall Street are more likely to restrain him than any of the carefully calibrated appeals coming from European capitals.
Relx’s big AI bet
Barely a day goes by without a story of someone in authority being wrongfooted by AI hallucinations, including the now departed West Midlands chief constable. Craig Guildford, who retired in disgrace over the Maccabi fans scandal, was seemingly taken in by a report of a football match that never happened.
Trust in the reliability of AI is wobbling. That’s been bad news for Relx, the data company whose shares have slid in the past year on concerns that the AI miracle may be overhyped. But Relx is doubling down on the technology. It is introducing a new AI tool for users of its huge scientific and technical journals division. Every insight, it says, will be “explainable, traceable and grounded in the highest-quality global science”. Unverified sources will be weeded out, while any contradictions will be highlighted.
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This is not only a big test and possible boon for scientific research. It’s a test for Relx, too, which weighs in at £55 billion, making it No 15 in the FTSE 100. It’s “not completely far-fetched” that Relx could one day be Britain’s biggest company, one of its largest shareholders and fans, Nick Train of Lindsell Train, said last week. Relx needs this to go well.
Saba still on prowl
Edinburgh Worldwide Investment Trust has seen off its tormentor, Boaz Weinstein, for the second time.
The FTSE 250 company’s six directors rightly escaped defenestration, but the vote margin was uncomfortably narrow, with 53.2 per cent playing 46.8 per cent.
Weinstein’s hedge fund, Saba, had increased its stake from 24 per cent at the last vote in February to 30 per cent this time. He also seems to have won arbitrageurs to support his cause. About 4 per cent of the votes in favour of sacking the board came from non-Saba investors. The renewed attack was flawed. The trust has had a strong year.
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Saba’s criticisms didn’t stand up to much scrutiny, not least its insistence on using the wrong benchmark to assess its performance and its seizing on the red herring of the trust’s perfectly sensible profit-taking in SpaceX.
The record 70.5 per cent turnout to vote was evidence private investors can be mobilised when they feel their best interests are threatened. But Saba hasn’t gone away — either from the trust, or any of the other 30 UK investment trusts where it has stakes of more than 5 per cent.