Mark Twain

From Ukraine to inflation, stagflation and food shortages, things feel gloomy… but the future’s bright

Plan for the future because that’s where you are going to spend the rest of your life

Mark Twain

One day

There is a lot of gloom about, and for good reason. Inflation, central bank tightening, stagflation, war, food shortages… the bad news seems relentless. In the long run, though, markets and people have a remarkable ability to fix what look like impossible situations. These fixes can be difficult – traumatic even – but they are ultimately positive. Necessarily, world events have meant our articles have tended towards the negative recently, but today we want to look at what could ultimately go right. A lot is changing and needs to change but once we are through what is likely to be a cathartic period in the world, things will get better: potentially much better. Part of our  job at Woodhill is to help investors through the difficult times so they can survive, participate and journey through to the sunny uplands. In looking at the path to those sunny uplands, there are so many areas we could explore but, for now, we want to touch on just two areas. World politics and technology. 

World politics – a long term view

Globalisation and free markets have been on the back foot for a while now with nationalism rather than internationalism taking centre stage over the past few years. Brexit was a  clear example of this, along with Donald Trump’s America First. Darker examples have been the aggressive action by Russia in the Ukraine as well as China making more aggressive and nationalistic noises

But we suspect that the war in Ukraine will change everything. Russia has shown the world the most negative aspects of nationalism and cultural chauvinism and we think this will drive global change. There has been and will continue to be a turning away from acceptance of such policies. The result will be a return to international cooperation, to peace and to free unrestricted global markets… and this will propel economic growth. As it does, it will calm the world down, giving rise to a potentially golden age of peace in its wake.

It could easily lead to dramatic and positive change in both Russia and China. In tandem with their pursuit of nationalism, both have become more repressive and restrictive at home. The Russian and Chinese regimes’ need to become more repressive clearly illustrates that substantial elements of their own societies are not happy. If popular support declines a repressive regime’s response is usually simply to be more repressive. But this road can only run so far and we are already quite a long way towards a potential end point. Although it seems impossible to imagine today, we suspect that within ten years both Russia and China will evolve to become more genuinely democratic.

This will be a clearly positive step towards world peace. It’s still true that no two true democracies have ever gone to war with each other. If Russia and China become true democracies it may literally mean peace in our time, at least in terms of large scale open warfare. It will also be positive for the world economy and also of course for the people of China and Russia themselves. Getting from here to there is likely to be fraught with drama, both political and economic, but ultimately a new world of global peace and prosperity will arise.

Technology never sleeps

Technology is never over. While some of the largest tech companies in the world now feel mature, with perhaps their best years behind them, innovation is marching ahead. We feel that a real turning point may be when new leadership emerges in Nasdaq. The social media giants, in particular, feel surprisingly seasoned. Amazon, despite its astounding logistical flair, is becoming a retailer and has almost reached all the markets it’s possible it to reach. It feels to us that many of the tech titans have now entered middle age. Newness is needed for the next long term move ahead. 

We see a few noteworthy developments here and the new tech that stands out most clearly to us is not the metaverse (which just seems like an attempt to squeeze the last bit of growth out of social media) but rather quantum computing. This will and is already revolutionising a potentially rapid acceleration within computing. To date, it’s like the harnessing of nuclear fusion – it will create unlimited power. We suspect that it will be this that will drive what could be the next long wave in technology. To clear the way for the new, the old will probably have to fall back into the rear mirror. Sadly, at the moment this is much of what has driven Nasdaq in the last decade. As in world politics this transition could be difficult but ultimately it will open a path to the new and to the positive.

Paul Wood, CIO Woodhill Asset Management