Trends Check: Keep Calm and Worry On …….

I just read an article referring to today’s date as “December 42nd 2020”. Do you blame them? The early days of 2021 still see Dryrobes, George Lee, lockdowns, NPHET and Brexit regularly flying up the Twitter trending charts. Sadly, Covid-19 remains omnipresent but, thankfully, the Donald has been cancelled by Twitter and replaced with our very own Don, or Donie O’Sullivan. Democracy almost failed last week on Capitol Hill but Cahirsiveen’s gift to CNN was on the spot to bring some sanity to the chaos. Now, it’s our turn.

It would be easy to pinpoint Covid as the source of most of this chaos but that would be almost Fake News. In reality, there are a number of markets and geopolitical trends which have been around for a few years now, even decades. However, one of the better descriptions of the pandemic’s impact was that it had hugely accelerated established trends. For illustration we thought it no harm to re-visit 10 trends we identified in December 2019 PP (pre-plague) and monitor the development or death of same.  The link to the full 2019 article is at the end of this piece but for explanatory convenience we will show those early views in bold text followed by our current thoughts and potential new trends gathering momentum. We will review in the same order as last year so here goes…..

Debt: Global debt has just topped the $250 trillion mark according to the International Institute of Finance (IIF). It’s rather scary to think that in the ten years since the credit crisis of 2008-2009 the world has piled on another $70 trillion of debt. This debt mountain is incredibly sensitive to rising interest rates. Hence, central banks led by the Fed have had to abandon attempts in 2018 to return interest rates to more normal levels. Central banks are now stuck in a Japan-style debt trap with additional credit creation achieving less and less stimulatory impact on economies. Now, frustrated and worried central banks are pressuring politicians to introduce fiscal policies to break out of this stagnation spiral. Unfortunately, politics at a global level is increasingly polarised.

The same IIF is now saying global debt reached $277 trillion in 2020. Another $27 trillion…. Hoo boy. Of course, trapped central banks didn’t see Covid coming but have played a critical role in supporting the global economy. However, the pressure is now on governments to deliver fiscal stimulus themselves. Let’s just say that debt number could be $300 trillion by the end of 2021. The pandemic was a definite accelerant.

Democracy: Levels of income inequality not seen since the 1930s presents the potential danger of history repeating itself. Democracy is under pressure. The Freedom House think tank published a report in 2018 highlighting that year as the 13th in succession where democratic freedoms were in decline. A total of 68 countries witnessed a tightening of civil liberties and political rights whereas only 50 countries registered progress in these areas. As 2019 comes to a close the strong-arm tactics of Trump, Putin, Xi, Orban, Erdogan and Prince MBS do not provide reassurance that authoritarian trends will reverse any time soon.

Democracy had a bad year where most bad actors named above got away with further repression. The only bright spot was the repudiation of the Trump regime at the ballot box but not without the deadly events on Capitol Hill. Arguably, the pandemic cost Trump the presidency and halted a dangerous erosion of US democratic institutions.

ESG: There is grounds for optimism that businesses and investors see “doing good” as a prerequisite for wealth creation. It almost sounds like common sense but the ESG investment framework covering Environment, Social and Governance factors is gaining traction rapidly with $30 trillion worth of investments now employing ESG metrics in their investment processes. That $30 trillion number will grow and standardised metrics to measure and audit ESG will be the next challenge for business and investor alike.

2020 was a huge year for ESG. The value of funds now employing ESG investment frameworks has exceeded $40 trillion during 2020 and will no doubt attract more follower funds in 2021. However, we would be wary of attributing all this enthusiasm as a pandemic appreciation of the need to save our planet. It was extremely helpful that technology stocks which score well in ESG frameworks had fantastic share price performances. Despite global economic chaos, the technology-heavy Nasdaq index delivered 43% returns to investors in 2020. Profits, or performance, always helps trends find new friends…..

Trade: President Trump is now saying phase 1 of the China-US trade negotiations might not conclude until after the 2020 US elections. Who knows what will come out of Trump’s mouth next but expect 2020 to again be dominated by trade tensions in the EU with Brexit, and in Asia-Pacific with China. The rise of populist politics and trade protectionism are the two sides of a no-win economic confidence trick. Closer to home, Boris Johnson’s bombastic certainty of concluding trade deals with Europe by the end of 2020 will be particularly painful to watch unravelling.

One of the few areas where there is bi-partisan agreement in US politics is trade with China. Ironically, despite the Orange Toddler’s tariff tantrums, China’s global trade surplus hit $460 billion in November. The surplus with the US alone was up 52% in November!! In this instance, China’s faster economic recovery from pandemic than the West has accelerated this sensitive surplus. Needless to say, trade tensions will continue into 2021, as will Brexit chaos but we will spare you the Johnson narrative.

China: The most important macro story apart from debt in the world today is China. It’s arguably the engine of growth which services the planet’s debt. By the end of this year Chinese consumers will have purchased goods worth more than $5 trillion, exceeding that of the original consumption super power, the US. So, financial markets will now have to pay much closer attention to the role of Chinese consumer confidence in the global economy. Think of how many decades financial research and trading teams have agonised every first Friday of the month for the US Non-Farm Payrolls. Get ready for Sunday night China economic reports but before that keep an eye on bond default newsflow. There have been four or five relatively significant blow ups in recent weeks, even involving State Owned Enterprises (SOEs). Do not underestimate the potential impact on consumer confidence if the all powerful state can’t save its own.

Our fears on debt defaults were unfounded so far. Debt defaults in the first 9 months of 2020 actually fell 20% to $13 billion according to Bloomberg data. The pandemic, in this case, may have stalled the trend rather than accelerated things .  China remains the biggest structural macro story in the world apart from global debt levels.

Tech Tension: Technology has been a dominant driver of markets since the credit crisis. Some companies now have user bases which would be in the top 3 populations of the world if they were sovereign states. Think Facebook and Alipay with 2.5 billion and 1 billion users respectively. As Microsoft and Apple’s combined market value now exceeds that of Germany’s entire stock market at $2.25 trillion it is tempting to think this is a high water mark for tech valuations. Two developing stories/trends suggest the tech sector could meet some growth challenges. First, Facebook’s power and abdication of responsibility on publishing false information to huge numbers of people is moving towards a 1911 moment. That date is neither a typo nor hyperbolic. For the historians, that’s the year when the Standard Oil refinery monopoly was broken up. Second, the rise of ESG is ultimately not compatible with corporate deference and fear of China’s wrath. The recent China anger incidents involving the NBA, Apple and Google suggest corporates may have to decouple from Chinese internet and broadcasting platforms. Yes, the internet could splinter and anyone following the Huawei case with fears over 5G security might be forgiven for thinking a “net split” is not just a possibility but inevitable.

Covid has possibly diverted attention away from the China tech/security threat but the 9/11 moment for democracy in America last week has possibly accelerated the 1911(Standard Oil monopoly) moment for Big Tech. Google and Facebook now face anti-trust litigation from the Federal government. But, these cases were announced months before the Senate run-off races in Georgia. If you are wondering why Google, Facebook, Amazon and Twitter have moved rapidly to neuter far-right conspiracy personalities and channels just think how many future Senate Committee heads(Democrats) were hiding under their desks in Washington last week. The role of social media disinformation in the awful pandemic death tolls in the US will also focus executive minds but it might be too late for Facebook.

Content is King: Even with a potential internet split, original content continues to be the critical asset for every media platform on the planet. We mentioned monopolies earlier but has anyone noticed that Disney has quietly assembled a portfolio of content assets with enormous power? Even before Star Wars opens in cinemas, Disney has accounted for $1 in every $3 spent in cinemas in 2019! The battle for content has exploded to unsustainable levels with almost 500 originally scripted TV shows produced this year. In 2012 that number was less than 300. And the costs are rocketing. One statistic we read recently was that for each $1 of a Netflix subscription the user was receiving $1 billion of content. It’s not just entertainment content. Think about the $5 billion valuation of Manchester City implied by the recent private equity investment made by Silver Lake Partners from Silicon Valley. Live sport is hot but $5 billion for a franchise which can’t fill its home ground…?

Production of content clearly suffered in 2020 but the uncertainty facing cinenas has accelerated the adoption of streaming services.  Remarkably, Warner Bros. have said they will debut ALL its movies in 2021 in cinemas and on its HBO Max streaming service on the same day! And check out Disney Plus. The ‘House of  Mouse’ only launched its streaming service, Disney Plus, just over a year ago but has reached subscriber numbers of 86 million already. For context, Disney planned to hit the 90 million subscriber mark by year FOUR in its initial communications.

Energy: Climate change is for some top hedge funds now a critical factor in every investment selection. The climate crisis headlines multiply each week and this means continued pain for fossil fuel investors. Apple’s valuation is now bigger than the entire US Energy sector. Furthermore, for fossil fuel dependent economies like Saudi Arabia and Russia it is striking that their levels of sovereign interference have increased in recent years in the likes of Yemen, Syria and Ukraine. There is a suspicion that this projection of international power is an attempt to disguise significant structural weakness.

Irrespective of pandemic hits to economic activity and energy consumption, the climate/ESG trends look set to continue to keep energy in the ‘unloved’ corner of the market. It is staggering to think that Tesla’s market value now exceeds the market cap of the entire US energy sector! However, it is worth bearing in mind how well “unloved” tobacco served its investors over the last three decades. Debt levels and long-term capital investment required do not make the tobacco and energy sectors comparable but there will be pockets of excitement along the way. Note LNG prices are rocketing in Asia to all time highs as unusually cold weather bites.

AI: We have been inclined to highlight the risks/areas to avoid but Accenture tells us there is a $14 trillion opportunity in AI across 16 industries in the years out to 2035. Health, finance, logistics and agriculture all look particularly suited to AI innovation and it is striking to see an out-of-favour sector like finance now attracting the largest chunk of venture capital money via European fintech.

We were told a pandemic vaccine was years away. It was delivered in 9 months. If ever the population of the planet was given a striking lesson on the power of AI this was it. The ability of AI to crunch huge numbers of varaiables and predict results in delivering a life or death solution for humanity will massively accelerate further AI investment in healthcare, education and finance.

Inflating Value: And that leaves us finally with another potential positive albeit it is difficult to argue this trend is established just yet. However, we can include this in our list with a speculative health warning! For years, value investing has been clobbered in performance terms by growth and momentum investing strategies. Yes, it might be difficult for oil to make a come back but other commodities could bounce back sharply if inflation picks up. Whisper it very gently but there is data/evidence to support wage inflation picking up in Europe. Wages are growing at the fastest pace in a decade and Europe remains the largest trading bloc in the world. A stronger Europe would be a very positive development. No doubt, investors stuck in value strategies will be watching hopefully for an end to their performance misery. The rest of the world should hope for the same too.

We are whispering again. However, for most of 2020, investing using value factors was a disaster. The FT was reporting at the end of October that value stocks were having their worst run in two centuries. Of course, economically sensitive stocks tend to sit at the value end of the investment spectrum so Covid allowed tech share prices to literally ‘Zoom’ while economies went into deep freeze and cheap stocks became even cheaper. Fast forward to today, and an earlier than expected vaccination, super low interest rates and fiscal spending from governments has thrown huge amounts of money into the system. There’s even chat of another ‘Roaring ‘20s”. Ireland borrowed €5 billion for 10 years last week at a negative interest rate, Tesla is racing towards a $1 trillion valuation and Bitcoin has just hit the $1 trillion mark too. Go back to that $27 trillion of new global debt in our first comments and then think about lots of capital chasing an unchanged number of opportuities and assets. We watch, we worry. But first, value investors could ride that inflation comeback extremely profitably.

So, it would seem almost every trend has survived the pandemic, in many cases accelerated. However, did Covid kick start any new trends worth watching? We think three are worth keeping an eye on:

  1. The pandemic has shone a tragic light on income inequality and poor education. The death rates in the poorer sections of society are significantly higher than average. Governments will act. The next version of The Donald could be far more competent and dangerous.


  1. Hong Kong has attracted geopolitical attention for some time but there’s a far more critical flashpoint developing in the Sino-sphere: Taiwan. More critically for the global economy, Taiwan is the epicentre of global semiconductor production. These chips are the real “oil” of the global economy. Watch and worry as tensions rise over China’s inevitable plans to control Taiwan.


  1. Work-from-home is now accepted as the future. Expect more strategic decisions by companies to facilitate that shift. However, we might also expect to find in the coming years that early hopes of similar or superior worker productivity were unfounded. After all, we are only human, and the pandemic has surely shown us that we do crave social contact not just screen contact.


Yes, we are human. We can’t forecast the future as there is always change around the corner. So, know the trends, keep calm and know some of your worst worries may never materialise.

Our original December 2019 article is here:

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