Artificial Intelligence has been dominating the media and investment landscape for months as tools such as ChatGPT introduce AI’s capabilities to the general public. The press coverage ranges from the apocalyptic (“end of the world”) to the messianic (a coming productivity and innovation miracle which will save the world). Capital has certainly been flowing to AI, with private investment estimated at approximately $120bn last year, with the US accounting for about two thirds of the total, while Nvidia and other listed companies have dominated the performance of leading public market indices.

However, when one meets with corporates or reads most of the press, what is striking is the lack of precision in the discussion. AI is commonly referred to in generic terms, despite it being both multi-faceted and at various stages of development, depending upon which facet one is referring to. This is normal for an emergent technology but to understand the potential ramifications much more granularity is required.

As a starting point, it is helpful to spend some time with people who are at the leading edge of recent developments and try to explore some of the obvious questions with them. In 2022 a team from Glasgow University won the prestigious Amazon Alexa Prize Taskbot Challenge and have since recently launched Malted AI, a new company that aims to develop AI for the corporate sector, in which I have invested. Follow this link to read my Q and A with them about the potential and challenges of this exciting but not clearly understood technology.

The UK goes to the polls on July 4th 2024, with the current Labour opposition party expected to win a comfortable majority and propel them into government for the first time since 2010. What are the challenges and opportunities that this change of regime creates – and how effective is the new administration likely to be, given the lack of fiscal headroom after several years of crises and rising government debt levels? What will be Sir Keir Starmer’s priorities?

I discuss these important issues with an expert and (crucially) politically independent panel in the latest edition of the popular Money Makers podcast, hosted by Jonathan Davis. You can listen in to this high level 40 minutes conversation by following this link. The other speakers are Nick Macpherson, former permanent secretary at the Treasury from 2005 to 2016, and Ed Balls, journalist, broadcaster and former MP and government minister.

Global Opportunities Trust, the investment trust of which I am the Executive Director, published its latest annual results on April 10th 2024, revealing a modest 1.7% Net Asset Value total return for the twelve months ending 31st December 2023. You can read the announcement here and download the Annual Report from the trust’s website, together with my assessment of the outlook. While it is evident that global equity markets remained more resilient than I expected over the course of 2023, the fundamental factors that underpin and explain the cautious positioning and strategy of the trust remain unchanged.

“Rather than a rosy economic environment ahead ” I conclude “the storm clouds look to be gathering. Sovereign bond prices may not suffer too much from here, but one has to expect credit spreads to widen and for equities eventually to react to an environment in which profit progression becomes increasingly difficult. Policymakers should be aware also of the tail risk of sovereign credit risk becoming a theme the vulture funds can latch onto. The deterioration in Germany’s economic position is particularly worthy of note”. The AGM of the company is on May 16th in Edinburgh.

My recent paper Recession or No Recession? laid out the case that a recession is much more likely than financial markets are currently assuming. For an independent second opinion I turned again to Lord Macpherson, former Permanent Secretary at the Treasury, now a visiting professor at King’s College, London and a cross-bench peer in the House of Lords. Nick Macpherson has both a deep knowledge of economics and many years of experience in practical policymaking, having been the head of the Treasury before, through and after the global financial crisis. Here is a link to the article.

Market participants remain divided whether the US and global economies can avoid a recession. In this latest analysis piece, I examine the evidence on both sides of the argument and conclude that, despite welcome resilience to date, there is little realistic chance that a recession can be avoided, with inevitable further consequences for asset prices. The complacent assumption that, if economic conditions deteriorate, there will still be a return to free money remains prevalent in many quarters. The return of inflation and rising interest rates, in other words, have not so far punctured “the everything bubble” completely. You can download the article as a pdf here, or follow this link http://www.globalopportunitiestrust.com/recession-no-recession/

My view is that the bear market in equities is through the first phase of its decline but the most recent rally is not sustainable and there will be at least two more phases before it is over. Persistently poorer economic news is likely to emerge in the second half of this year, leading to a marked deterioration in investor sentiment. The emergence of this kind of gloomy sentiment and commentary will be a classic signal that the trough of the bear market may finally be imminent. As we work our way through what will be a difficult market environment, policy will in due course be loosened, but a time lag will again come into play. Here is the link to the article.

Sandy Nairn discusses the fallout from the global financial crisis and how governments have responded with one of Britain’s most distinguished civil servants, Lord Macpherson, the former Permanent Secretary at the Treasury (2005-2016) and as such a a key player in guiding policy through the global financial crisis (GFC) and helping to ensure that the crisis did not spiral downwards to precipitate a rerun of the depression of the 1930s. But has the initial success of the policy response to the crisis been undermined by the reluctance of policymakers subsequently to end the exceptional easy money/fiscal stimulus that followed? This Q and A (link here) explores the issues and the mis-steps that have led to today’s siding financial markets.

In this extended interview with Sir David Omand, a former Permanent Secretary of the Home Office and Director of the Government Communications Headquarters (GCHQ), I discuss the threats companies face from cyber-attacks. I found it reassuring and disturbing in equal measure. The reassuring elements included examples of just how much the security services do to protect the public both individually and collectively in the form of public services and corporates. The disturbing elements included the sheer scale, geographic dispersion and state support for the range of nefarious activities that threaten companies and individuals. Understanding cybersecurity is a must subject for any investor. This is the link to the article.

October 15 2022