Long Rates Rising ?? ?? ??

Hi folks, happy Thursday (we aren't saying happy new year anymore are we?), is it cold in here today or is that just me ...

We've all been ramping back up to full throttle this week it seems with all those "let's tackle that first thing in January" promises coming back to haunt us big time. We did manage to have a lovely break over Christmas though in our house and the Frozen soundtrack is still playing strong in my head - I watched it for the first time ever - and the second, third and fourth times -as our eldest Leo, got really quite into it. The boys are loving asking our smart speaker to play the songs every five minutes.

Yes, I know I'm well behind the curve here (it came out over a decade ago!) but it really IS quite a wonderful piece of cinema isn't it?? Do you want-to-build a snowmaaan?

Christmas roast dinner for ten went pretty well I'm pleased to say, although the pigs in blankets were disappointingly overlooked (human error). My 30-step runbook is available on request.

I did enjoy all the Spotify-wrapped imitations from other brands toward the end of 2024 but I drew the line at thetrainline's attempt to show me my "year in trains" (yes, really!)

Got a lot of podcast listening recs for you this week but first -

Markets mumble

Stocks have been up and down and are now roughly flat. The big story so far in the early days of this year is in bonds where there is pretty much a global selloff going on - 10-year rates have been edging higher and higher in both the UK and US up above 4.7% and even 4.8% at the 10 year gilt (over 5.3% for the 30-year) looks like highest levels since '08 in the UK 10 year and since the '90's in the longer dated bonds. Sterling has suffered.

The question is why? Your usual bond market frameworks point to five potential candidates: growth, inflation, path of interest rates, term premium and fiscal deficit worries. Unusually I guess all five of these are very much "in play" but to different degrees around the world. The US looks more "growthy" than inflation-y, but the worry in the UK is its more fiscal issues to the fore.

Here's that long-term 30 year gilts chart that is getting a lot of airplay at the moment.

For allocators I think this prompts at least four questions:

• At what point does the risk/return start favouring holding more fixed income compared with stocks?
• At what point does it favour increasing the duration of your fixed income?
• Does it make sense to rotate from non-UK to UK fixed income?
• Is the re-rating passing through into real assets?

Three things I'm reading

1. Hans Stegman says the European dream differs from the American dream (link)

Hans argues that the "bottom 90%" of the population has benefited more from growth in Europe than the US, despite overall GDP growth in the US being much higher. While US growth has resulted in "public poverty and private wealth".

I guess this stuck out to me as runs counter to the more general trend of putting the US economic model on a pedestal, but in general I am not sure that a line of thinking that pits economic models against each other like a competition for one winner is that useful in the end as good and bad elements are bound to exist in all.

Replicating the U.S. model—a tech-centric, high-growth paradigm—risks undermining Europe's unique assets. Mariana Mazzucato's insights into mission-oriented public policies suggest an alternative: a shift toward coordinated, goal-driven strategies prioritising societal and environmental well-being over growth for its own sake. Europe's mission should anchor itself in these strengths, leveraging its robust social systems, strong environmental record, and commitment to equity.

2. JP Morgan Guide to Markets - a good time to check in on expectations for GDP growth, earnings and rates at the start of the year:

Low expectations generally for the UK (other than interest rates!) high expectations for the US and emerging markets.

Things I'm listening to

1. Karen Ward on the Rest is Money (apple | web)

Nice macro economic scene set at the start of 2025. Why the US economy of 2025 is very different to 2017 (Trump's first term) and why that means some of the Trump policies carry bigger risks. Plus growth and productivity ideas for the UK.

2. The Sustainable Edge podcast with Alison Taylor (apple )

Alison Taylor is a good voice to listen to on sustainability in a Trump-era world. The author of "Higher Ground" argues that we have become entirely confused on the issue. The traditional view of maximise shareholder value and don't break the law doesn't work but beyond that, it's got confused, lots of jargon, lack of common understanding of what things mean. She's not wrong on that.

Alison makes a good and realistic case for how companies can navigate the large-scale shifts in sustainability practice in 2025, by focusing on a small number of "existential" issues that are at the core of how their business makes money and placing more weight on human rights as a guiding framework. Before promising to make the world a better place focus on making your business better and a good-faith effort to do no harm.

3. Excess Returns - the one factor that explains the struggles of value, international and small cap (apple | web)

Spoiler: it's intangible value (intellectual property, brand, human capital, and network effects). Things that have been big drivers of the economy in last few decades but handled badly by traditional accounting. Great discussion with Kai Wu who has done some excellent research on this topic. It's not actually all about tech, there are intangible heavy / light firms across more traditional industries (finance, consumer) that show the same patterns.

Chaser: read Kai's annual letter (link) which discusses diversifying away from Mag7 but still retaining exposure to the intangible economy (and yes, they have a fund for that). Plus gotta love a research paper with emojis.

4. OddLots are reliving the 90s: What it felt like when everyone was hopeful, happy and rich (apple \ web) with Colette Shade.

those were the days ... love the discussion of why the "y2k aesthetic" was all round bubbly and transparent (culture is downstream of larger political and economic forces).

Grab bag

A couple of new year themed podcast recommendations:

• Shane Parrish's Best of 2024 episode
• Productivity "guru" Cal Newport with 4 practical pieces of ideas for living a deeper more productive life in a distracted world (link). -(1) bring a book (2) deep clean your inbox (3) take a break from online news and (4) "simulate" team status meetings to manage overload and in flight commitments.

The Economist says to see what European business could be like, look to the Nordics.

Some thoughts from me for 2025 for areas to focus on for asset owners and asset managers.

Derek Thompson writes that "Rising solitude is the most important social fact in American life today ... reshaping the consumer economy, warping politics ... and changing our very personalities".

Why the worst words in politics are : "it's not a good look" (because criticising something for being a bad look is easier than saying it's a bad idea with a faux sense of objectivity). (the economist)

Chart of the week - I liked the look of this chart on energy prices across Europe (UK is not shown) shared by Sylvain Vanston - some fairly obvious takeaways jump out. Coloured clouds are different countries, each dot represents an hour. Higher up dots are more expensive.