I wrote this article because during this Easter period we decided to stay in and around Rome. We took a number of long bike rides around the city and along the Tiber and I could not help but notice the spring green of Rome, once again.

It’s an amazing sight and one that I feel grateful for. It also reminded me that whilst the investment markets are still recovering slowly and tentatively from last year’s sell off due to the Ukraine/Russia war, they are cyclical by nature and whilst, as humans, we will always tend to run from one crisis to another, there will inevitably be times of abundance and plenty.

My experience of olive trees through my clients

You may have olives’ trees that you tend to in your garden or land, in Italy. I know that many of my clients do, and take great satisfaction in looking after them year in year out to harvest the precious oil that comes from them but, listening to the tales over the years, I can make many comparisons with investment markets.

The ‘Ulivo’ goes through the seasons of the years but never appears to bear fruit in a linear way. In fact, many of you tell me that some years the ‘Ulivo’ may not produce any fruit, other years it is plagued by the ‘moscerino’ (little fly), other years there isn’t enough frost or too little frost and some years you get a double harvest. In other years your friend with the neighbouring field, facing a different direction, has a bountiful year, whilst you have none. None of it seems to make any sense. All variable factors under which you have no control but you accept as part of your nurture for the ‘Ulivo’.

It seems that like every living breathing organism, the ‘Ulivo’ will provide what is needed, but not necessarily in the way you would always want it to. A defined amount of litres of oil each year, just enough to feed my family and friends would be fine. No such luck!

It is easy to forget that the component parts of investment markets are in fact living breathing human beings. Every company, government or supranational is run by people who are subject to folly, excess, corruption, huge advances forward, amazing decisions which benefit everyone, building and growing enterprises and generally trying to find a healthy balance.

Just like the ‘Ulivo’ the investment markets go through their cycles of life according to many variable factors of which we have no control. Flowers blooming (markets rising), leaves falling (market falls), harsh winds (the volatility), buds sprouting (opportunities presenting themselves) and then the cycle repeats itself. Your portfolio goes through its own cycles of life.

I have seen in the past that people new to Italy, and the ‘Ulivo’, have talked of uprooting an old tree (with those amazing architecturally contorted trunks) because it’s old and no longer bears fruit, only to be told by someone with more experience that it just needs to be trimmed in the right way, at the right time of year and creating that hollow space in the middle of the tree so the light can shine through (the equivalent of a review of your portfolio) only for the tree to once again bear fruit when the conditions are favourable for it to do so. This is not to say that dead or dying plants should not be replaced. If they have served their purpose and need to be replaced with a younger healthier variant then so be it.

There are so many similarities between our investment portfolios. The timescales and the variables may differ (wars or winter / inflation or summer) but the ebb and flow, the rises and falls and the seasonal changes are ever present.

The coming years may be lean years, or could provide us with way more then we could ever want or need. Ours is not to know, nor have any control over the variables, but only to do the best we can to make sure that we look after what we have.

If you find it difficult to stick with your investment strategies and would like to get busy trying to chase market returns (I include myself in this group, but am trained enough to know that it doesn’t generate higher returns), the research shows that it has no better effect than generating higher transaction costs and other fees associated with switching investments frequently. The only thing you can be assured of is lower investment returns as a result.

Patience is key! Live the seasons and wait
for abundance to once again raise its bountiful head.

Let’s talk cash!

OK, now that I have my hippie moment out of the way, we can get back to talking about financial things again. So, let’s talk about cash that you might have sitting around and finding a better home for it.

Unfortunately, as many of you find out, once you leave your home country and become resident in Italy, you are almost instantly excluded from taking out new financial products in your home country and instead need to look at what other offerings are available to you here. This means often looking at what Italian or EU based banks can offer, and principally in EUR.

A number of people have mentioned to me recently about the savings rates available in the UK, nearing 5% in some cases and wondering whether they can achieve anything similar in Italy or the EU. The answer is that there seems to be very few, and where they are available the interest rate varies between 2.5% and 3% gross max for 1 year deposits, rising as much as 4.5% if you are willing to lock your funds up for 3 years. In addition, you have to look out for accounts which are ‘vincolati’ i.e. they have terms and conditions attached. These may be as simple as locking you in for a specific term (fixed deposit) or requiring you to open a current account and transfer your basic banking to them as well. In true form things are made a little more complicated than somewhere like the UK.

Italians, of course, are akin to also looking at their home country government bonds which are currently paying around 3% interest gross at the moment. having dropped from about 3.38% gross around the beginning of March.

One advantage of investing in government debt directly is that it offers an attractive tax rate at 12.5% rather than the 26% for other financial instruments.  Placing cash monies into short term Italian or EU government debt, if you are seeking better EUR returns on your cash, might be a useful alternative to seeking out a higher paying deposit account. (Bear in mind that if you want your capital back at the end of the bond period then you need to wait until  bond term matures. Selling early could mean a capital loss). Of course, if you are seeking better returns in other currencies then you can buy government debt in that country instead.   Government debt, wherever it is purchased still attracts the 12.5% tax rate on interest in Italy.

If you are simply looking for a deposit account then you could do no better than compare rates on facile.it or confrontaconti.it 

The only way to purchase government bonds is through an exchange mechanism such as an investment platform.  In Italy, investment and banking are highly institutionalised so speaking with your bank might be the best way to approach it if you are new to this kind of investment.  Otherwise, a quick online check with throw up some other solutions.

Inflation considerations

Whilst these rates offer considerably more than the last decade it is indicative of the bigger and more aggressive trend upwards: inflation.
For perspective, the USA and UK are experiencing inflation ( measured by the Consumer Prices Index) at around 9% and 10% respectively. Italy is currently on 7.7% inflation year on year.

So, regardless of how much you might make on a deposit it is always going to be well below the rate at which the spending power of your savings is being eroded year on year. You may know my thoughts on the matter already, as I have mentioned it in previous E-zines, but I think inflation is here to stay, and I am deeply suspicious of the opinions that it will fall back to 2 or 4% within a year or so. There is so much debt in western economies and the only way to rid ourselves of it, and bring back economic stability to the west is to inflate it away. That could mean more medium term pain.

In summary

If you have cash lying around in deposit accounts, cash which you may need for an emergency or just need to live on, then seek out better interest paying accounts. A good strategy is to keep approx. 6 months cash on hand and then stagger your further 6 months cash needs in 6 month deposits, 12 month,18 month etc. In this way every 6 months you have a maturing deposit when your cash starts to run out. If you don’t need the cash then you just roll it over into another longer term deposit.

But whatever you do, don’t keep all your life savings in cash hoping that a higher interest rate will protect you from rising prices. It won’t!

The banking sector appears to be in the midst of a wobble at present, so it seems like a good idea to examine exactly how worried we all should be about our banking arrangements.

As no doubt everyone will have read, the current concerns have been triggered by Silicon Valley Bank, an institution the existence of which I was blissfully unaware until it suddenly collapsed. On examining what happened to SVB, the most startling thing to me was that it essentially suffered a good, old-fashioned bank run: depositors lost faith, ran for the exit and, well, you know the rest. The bank didn’t even have particularly exotic lending practices – most of its problems were caused by the fact that it had purchased government bonds with relatively long maturities, which had suffered temporary losses due to rising interest rates (the value of a bond will fall as interest rates rise, but this generally won’t result in a loss if you hold it until maturity).

If the crisis had been circumscribed to SVB and a couple of other similar banks in the US, we might all have gone on without further thought, but then all of a sudden we found out that Credit Suisse was in trouble. Was this the same sort of crisis, or something new? In reality, CS had, in the words of one analyst: “spent the last decade finding astonishing new ways to lose money and embarrass itself”. Some of the best examples of this were: allowing drug money to be laundered in Eastern Europe, getting caught up in a corruption scandal in Mozambique, channelling client funds to a fraudulent trade finance lender and a spying episode involving management and former employees. It is fair to say that CS had made its bed quite well and recent events finally forced it to lie down.

Once we had digested the idea of CS’s failure, then the market started to be concerned about Deutsche Bank – another institution which stands as an example of the colossal risks emanating from global banks with a wide variety of activities, from retail to investment banking and everything in between. For the moment, at least, it would appear that the markets have been soothed somewhat, but one could be forgiven for being concerned over the safety of one’s money in the current environment.

How safe are deposits with Italian banks?

Turning to the safety of Italian banks, we need to examine the provisions of Italian depositors’ insurance, which is available up to €100,000 per account holder (so if you have a joint account, for example, you get €100k for each person). Opening more than one account with the same bank doesn’t change anything, but opening an account with another bank would give you a further €100k for funds deposited with that bank.

As always, however, there are a number of devils in the detail, and the FITD (Fondo Interbancario di Tutela dei Depositi), the entity that provides the guarantees, has its fair share. First of all, it should be noted that all banks licensed in Italy must adhere to the FITD, which functions like a mutual guarantee system. What this means is that if a bank fails, the FITD basically has a whip-round amongst the other member banks in order to make good on the guarantee. This might be all well and good when the bank in trouble is some rustic banca popolare, but if it happened to be one of the big names, then this would almost instantly translate into a systemic crisis whereby trying to prop each other up would lead to them all falling over. The image that comes to mind is that of a group of drunks staggering down the street trying to keep each other upright. At that point the big question would be whether, and to what extent, the state would step in to provide a blanket guarantee. The current orthodoxy in such matters would seem to imply that some sort of guarantee would be forthcoming, although obviously much would depend on the state of the public finances at the time.

The mechanics of FITD guarantees

The FITD has been in existence since 1987, but only recently has its name (“Fondo” meaning “Fund”) actually corresponded to the reality of the situation. Up until 2015 the guarantee was totally unfunded, but a 2014 European directive obliged member states to institute depositors’ guarantees of €100,000, and for these to be pre-funded in the measure of 0.8% of the total guaranteed deposits by 2024. As of the end of 2022, the FITD had funds of €3.3 billion to cover €740 billion of guaranteed deposits (i.e. those under €100k), so roughly 0.44% of the total. The FITD forms part of EU and Italian banking regulation mechanisms and has been used primarily as part of various solutions contrived to avoid failure for struggling banks in the first place. In fact, since 1987 the fund has paid out about €3.3 billion, of which only €77 million was used to make depositors whole, with the rest being used to fund “solutions” to avoid collapse – the most recent example of this being Banca Carige which received €530 million as part of its sale to Banca BPER in 2022.

In the background, the EU is working towards EDIS – the European Deposit Insurance Scheme – which would institute a pan-EU fund as part of the banking union, but the machinations of this project have yet to be worked out satisfactorily, so for the time being we are stuck with national systems, albeit ones offering similar guarantees.

So what does this mean for me?

Notwithstanding the inherent weakness of a system based on mutual guarantees as described above, it would appear that the €100,000 minimum would be respected in any reasonable scenario. It also seems likely, based on past form, that the state would intervene to encourage a solution in any critical situations long before even a relatively unimportant bank actually failed. The fact that the depositors’ insurance is based on an EU directive also seems to imply that any need for state intervention to guarantee the basic level of depositors’ protection would be supported by the EU. So on the basis of all this, it seems reasonable to choose your local Italian bank by considering the services it is able to provide you as opposed to any perception of its security.

The proviso to the above is that you make sure to maintain only a modest amount of money in any bank and look at more secure solutions for the bulk of your financial assets. In this context, EU investment wrappers remain the gold standard for Italian residents, offering greater levels of protection as well as myriad other benefits – please take a look at this article – and get in touch if you’d like to explore how this might work for your own situation.

This may seem like something of a provocative title, but I am merely picking up on the common refrain that Italy’s current government is the most right-wing since the fascist era.

It would be no minor issue for the country if indeed we did find ourselves heading down a similar path, so rather than simply dismissing out of hand the possibility that Meloni could be a Mussolini for the new age, I thought I would look into it further. We are, after all, talking about someone who as a much younger woman expressed the view that Mussolini was “a good politician”, whatever exactly that is supposed to mean. I imagine we all expressed at least some views when younger that we might cringe to think about today, but certainly Meloni’s comment on Mussolini was something of a clanger considering the office she now occupies.

Before we talk about Meloni’s politics, let’s think about the difference between the Italy of 100 years ago and today. 100 years is a useful timeframe, because 1922 was the year of the March on Rome – the moment when the fascist movement kicked into a higher gear and, notwithstanding the fact that it was poorly resourced and even more poorly organised, managed to bring Mussolini to power. The fascist movement had begun a few years earlier, populated initially by disaffected soldiers returning home to anything but a victor’s welcome following the First World War. Subsequently, the fascists managed to find their raison d’être and much broader support in the fight against socialism/communism, yet the entire movement might easily have fizzled out had it encountered even a modicum of resistance from the monarchy and the political establishment or if one of the many assassination attempts on Mussolini had succeeded in the early years of the regime* .

As fascist power grew, the desire to return Italy to its rightful place in the world, as heirs of the Roman Empire, took hold of Mussolini’s imagination, leading to the conquest of such places as Libya, Ethiopia and Albania. At home, the country was dragged into the modern age through the execution of public works programmes as well as monumental changes to cities such as Rome. The next time you wander down the via dei Fori Imperiali, consider that you are in an area profoundly changed by Mussolini, who demolished an entire area of Rome to make way for what was initially called via dell’Impero – put in place so that he could see the Colosseum from his office in Palazzo Venezia at the far end of the road. It is fair to say that from an economic and social perspective, the Italy of 1922 is almost unrecognisable compared with the country we live in today.

Now let’s consider the Italy of 2022 that swept Giorgia Meloni to power. Notwithstanding its difficulties, Italy is undoubtedly among the wealthiest countries in the world. I know there can be large regional differences and often the systems are confusing, but generally speaking Italian healthcare, education, infrastructure and other public services range from adequate to excellent. Italy is the home to world-leading industries and is certainly a place where one can rise through the social hierarchy regardless of one’s origins. If you need proof of this, consider that Leonardo Del Vecchio, the founder of Luxottica who died last year as one of Italy’s richest men, was born in 1935 to a solo mother and grew up in an orphanage.

Italy has many of the hallmarks of modern, well-heeled democracies, including an ageing population and a prevalence of small families (when people decide to have children at all). It is incredible to think, but over the course of my lifetime (I’m not quite 50 years old), the number of babies born in Italy each year has halved from about 800,000 to about 400,000 currently. The odd incentive for young families isn’t going to change that trend in any substantial way.

Imagine, now, if you will, that Meloni decided to pick up the fascist cudgel and start to take a more aggressive geopolitical stance. The current army of one-child families is probably the greatest guarantee against this because how many of these parents will permit their children to march off to war? Occasionally one does see fascist meetings – for example I recall seeing one reported in Cremona to commemorate the death of Roberto Farinacci, a particularly hardcore exponent of the black shirt, but to be honest the sight of fat old men singing “Giovinezza” (the fascist anthem, dedicated to youthful courage), was as comical as it was pathetic. It is also amusing to note that one of the main scandals so far in the Meloni era has been her decision to use the masculine article “Il Presidente” as opposed to “La Presidentessa” or something similar. This seems to me to be the kind of problem you discuss when you really don’t have any serious problems (or, perhaps more accurately, you don’t wish to discuss the various intractable problems that do exist). I also don’t think we should be particularly concerned over the apparent revival of Berlusconi’s connections to Putin: he simply can’t accept that he’s become a marginal figure, almost a caricature of himself, so he’s returned to his advertising roots and is willing to do anything to get attention.

What I do see is a general trend towards nationalism, which can, I suppose, be seen as a very watered-down version of fascism. There is at least the possibility of some expansion of state participation in business, although one can but hope that no one is considering a return to the days of IRI (L’Istituto per la Ricostruzione Industriale) – the behemoth state holding company founded during the fascist era that for decades controlled huge swathes of the Italian economy. In this context, it is disturbing to hear discussion of the potential nationalisation of Telecom Italia (TIM), although this might be best seen as an (expensive) opportunity to correct a poor privatisation that left the company imprisoned by its debt burden. It is more likely to see the state getting involved at a smaller scale, with the recent trend in the use of the state-controlled CDP (Cassa Depositi e Prestiti) for financing and even venture capital activities an indication of things to come. It is also more than likely that the state guaranteed loans issued as part of Covid support measures will eventually result in the need to absorb zombie businesses in politically sensitive sectors.

All in all, it seems to me that Meloni fortunately has neither the innate tendency towards fascism, nor a populace willing to be led in that direction. We would probably do better to think about whether the current global trend of rearmament will lead to problems in 10 – 20 years time when all the shiny new weapons are ready for use. I worry that if you build enough of them then sooner or later an excuse will be found to use them – violence is violence, regardless of political ideology.

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¹Using US market data – S&P500 for equities and 7 – 10 year Treasuries for bonds

The good news is that after the difficulties of 2022, many assets now offer better value than they did 12 months ago, but whether or not 2023 will offer great returns or is destined to test our nerves again is a matter of great debate.

It would be tempting at this point to start looking at economic forecasts for 2023 to get an idea of what to expect. The issue here is that which I examined in my article on inflation – we can’t actually know what the future holds, so let’s concentrate on putting together a portfolio that is likely to serve us well as we attempt to generate a reasonable return for the medium-long term.
Far more important than economic prognostication when constructing a portfolio is understanding your own risk profile, because this allows you to give appropriate consideration to matters that you can ascertain and that will certainly affect your investment returns. In no particular order, you need to be thinking about:

• Where are you in the life-cycle of contributing to or drawing down from savings?
• What are your overall financial resources and how adequate are these compared with your needs?
• What are your aspirations?
• What is your ability to withstand market volatility?
• How much do you worry about your money?

Once you have answered all of these questions, you can come up with an appropriate posture to risk. Whether or not you should vary this posture depending on the current market circumstances is a question that you must try to answer at the outset. If you are going to change your posture on the basis of current circumstances, then you must believe that somehow you are able to understand the current situation better than the market consensus, and also understand the affect your view might have on the markets if it happens to be correct. Your assessments might be correct occasionally, but are also likely to be wrong quite often (rather like those of professional forecasters). This leads to the maxim that for nearly all people, nearly all of the time, the appropriate posture is their neutral one based on their risk profile.

There is one other extremely good reason why you would always be well-advised to maintain this neutral posture: it will help you to avoid the cardinal sin of investing – selling low. As I explained in the article linked above, long-term investment offers magnificently favourable odds of good returns, but if you are prone to selling at the bottom, as you may well be if you decide to oscillate between “risk-on” and “risk-off” postures, those odds are turned upside down and will likely cause serious damage to your wealth. Of course, you might also end up buying high occasionally, which may lead to a period of regret, but if you have invested wisely, then time will iron out these wrinkles. It is undoubtedly better to concentrate your attention on what you can know and influence, rather than wringing your hands over economic forecasts.

These are complicated issues that all investors have to face. My advice aims to keep you focused on the important issues rather than leaving you to try and puzzle through the ever-present “noise” in the investment markets. Over the long-term, you will almost certainly find that ignoring the distractions provided by the market action in years like 2022 will contribute to, rather than detract from, your investment success. If you would like to know more, or to conduct a review your current portfolio, then feel free to get in touch for a no-obligation consultation.

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So what can expect from 2023?

Working with The Spectrum IFA Group means that I am invited each year to their annual conference where we are invited to listen to a number of fund / asset managers who can give us some insight into what has happened and also where things might be heading. This conference was a special one because it was the 20th anniversary of the The Spectrum IFA Group and so the event was held at Gleneagles in Scotland. Apart from the cold (average -2 degree), the conference went well and I managed to scribble some notes from the various speakers, my favourites being David Coombes from Rathbones Asset Managers, Rob Gordon from Dreihaus/VAM Investment funds and Rob Clarry from Evelyn Partners.

(Disclaimer: It should be noted the views expressed here are my own. The information collected has been interpreted by me and can only be taken as such. To protect the names mentioned above none of this article should be taken as advice, recommendations or an offer of solicitation from the fund/asset managers themselves or the companies they represent).

“Heads of State don’t have a clue what they are doing…yet they think they can predict the future”

This was how one asset manager (who shall remain unnamed) started his presentation. The point being that if we are basing our investment ideas and knowledge on economists, central banks or governments themselves, then it is almost certain that you are going to get it wrong.

But don’t just take my word for it, let’s looks at some investment examples that didn’t go well in 2022, and which prove the case:

1. Wind Power is the future…but is it? It produces only when the wind blows, it is significantly more costly than traditional energy sources. The amount of ecological damage to build wind turbines in terms of resources required and to install them probably far outweighs the benefits if you place it against other alternative energy sources. In addition, the blades have a lifespan of approximately 10 years then they need to be replaced and buried somewhere because they cannot be recycled. Yet, faced with all these facts and a sector heavily subsidised by government money, a Danish wind power company: Vestas, which has never turned a sizeable profit was worth more than Apple at one point.

2. Cryptocurrency: There is not a lot to say about Crypto in 2022 other than a complete investment disaster. Bitcoin lost 60% of its value in 2022. A pretty high risk asset if ever there was one. Crypto was also plagued by the collapse of FTX with literal losses ( i.e lost and likely never to be found) assets of $1-2 billion. Hackers also stole $4.3 billion of cryptocurrency in 2022, an increase of 37% from 2021. Yet, governments tell us that government backed crypto-currencies are the future. I will stick with cash, thank you very much!

3. Tesla and Elon: How the darling of the investment world, and government officials alike, has been ousted from his perch. A bit like crypto currency Tesla lost 65% of its value in 2022. You might argue that he is changing the world with his electric vehicles, yet did you know that Volkswagen made more electric vehicles in Europe in 2022 than Tesla? So, who is changing the world? His move to Twitter should also raise eyebrows. A company worth $40bn on the world’s financial markets which has yet to show a profit and one which he also says will ‘change the world’. Remain a sceptic!

4. Inflation is transitionary: Governments also said that when the inflation train left the station in 2020, that, at best, it would be, quote, ‘transitionary’. i.e it would go away once post Covid supply chains returned to normal. I never believed this and wrote about it on a few occasions in the last couple of years. Let me tell you that inflation is here to stay…and would you like some numbers on that? Well David Coombes from Rathbones hazards a guess that inflation will continue at approx 4% in the US, 3-4% in the EU and 5-6% in the UK as an average over the next 3 years. I suspect those are headline ‘government’ declared rates. My guess is that real inflation may be somewhat higher. Protecting those savings and investments has never been more important.

Did you know that inflation needs to only run at 7% per annum for 10 years for the value of your money to halve. 2022 ‘true’ inflation was more like 10-15% across Europe, so that’s 2 of those 10 years taken care of already.

So with all this doom and gloom, what actually did do well in 2022?

Answer: The old, out of favour, industries of the past: BP, Shell, Lockheed, Schlumberger, Caterpillar et al.

Yep, those very same industries which no one wants to invest in any longer. They turned the corner and became the star performers of the investment markets. In fact, anything moderately related to ethical / sustainable / ecological investment had the hardest time in 2022. It was enough to test anyone’s ethical investment values!

However, the truth of the matter is that with interest rates likely to be higher in the next 5 years than they have been in the last 5 years, and the cost of debt being significantly higher, we may just see some of the older, cash rich industries doing quite well, and seeing some of the newer debt heavy companies struggling or even going bust.

Take Netflix. (It has become my go to TV channel!). Netflix’s business model is built on continual expansion of its subscribers and content. However, it has been heavily funded by cheap debt. How might it progress in a world where the debt it needs to make a new series costs 5 times more than before? I suspect it might survive this new world it finds itself in, but could it become a takeover target from a more established and cash rich company, like Disney?

Another example of one of those new, sustainable, ethical businesses, potential disruptor / game changer was Impossible Meat. For those that are not aware they are producing plant-based meat alternatives. In 2022 they saw their share price fall 96% as consumers turned away from their product. (I tried them myself and can’t say I was too impressed!). An example of governments pushing us towards more plant-based and lab made foods, not to forget bugs. But can they accurately predict the future?

So, the cost of servicing debt is certainly going to reshape the investment world again, yet there is one major theme which will shape the world in years to come: SECURITY and I don’t just mean military security, but also energy and food security.

Energy Security
Energy security is being driven by the war in Ukraine and the end of the reliance on Russian cheap energy. A perfect example of how energy policy is needing to change focus is Giorgia Meloni’s recent trip to Algeria to agree access to their gas fields, and export into Europe. Algeria has the 11th largest reserves in the world and have a gas surplus. Italy is trying to line itself up as an energy hub for Europe given that gas will likely now come in from the global south rather than the north, and Italy, it would seem, is ideally placed as a central Mediterranean country and its access into the EU. The only snag, which is not much talked about, is the fact that Algeria is a Russia ally and currently buys fighter jets from Russia and supports it in the war with Ukraine, so how the Italy/Algeria agreement will work is anyone’s guess.

Military security
Military security for the EU is still going to come from NATO (i.e US led military policy). It could be argued that the Ukraine war is not in the EU’s interests, in particular Germany, but they have to kowtow to NATO/US driven policy because the EU never could agree on building an army of its own to defend itself, and hence self- determination in terms of defence policy. There is no other real option and so the EU will very likely continue to arm Ukraine and stretch out the war if that is what US policy dictates, even when negotiations to end it might be possible. The order books of most armament / defence companies will be very full for some years to come.

Food security
This was an area which provoked more discussion from the fund managers. In particular how the West will need to develop to ensure that food is still delivered to our supermarkets.

A good example of a company that is innovating in the area of food security is John Deere. The agricultural machinery and tractor marker. They have already developed a fleet of unmanned vehicles which can plant, monitor and harvest. These machines are no longer human driven one-purpose vehicles. They are machines with embedded computers, checking soil temperature and microbe levels, adding fertilizer when needed and checking weather signals, determining when to plant, when to harvest etc, and all without any human intervention in the field. The biggest customers will ultimately be the biggest producers, namely the US, Brazil and Ukraine (you may be surprised about Ukraine being in the list, but a benefit of war for large industries is that they can take advantage of disaster capitalism. Large US and International agricultural companies have been able to take advantage of new laws liberalizing the sale of agricultural land in Ukraine. Previously, Ukrainian small farmers were protected and forbidden to sell their land to large agro interests. Now, big companies are moving in to take charge of Ukrainian land. On one hand the farms will benefit from economies of scale, but the small-scale sustainable farming model will struggle to survive).

Agricultural and food production will be a big investment theme in the coming years!

So, with all these themes in mind, the broad outlook for the future and investment, according to Evelyn Partners, will be determined by 4 main Megatrends.

• SHIFTING DEMOGRAPHICS
• CHANGING WORLD ORDER
• BUMPY ENERGY TRANSITION
• TECHNOLOGICAL REVOLUTION

I won’t bore you with details in each area, but here are some points around the subjects discussed:

SHIFTING DEMOGRAPHICS. Ageing populations, more opportunity for pharmaceutical companies and drug development, more use of online doctoring and diagnosis, roll out of robots in our hospitals and clinics (robot cleaners, robot secretaries, robot surgeons, robot beds moving freely from ward to surgery room without the need for people). It’s all coming and given that 80 out of every 100 people will be over the age of 65 by 2050 in Japan, and around 60 in 100 in Europe, it is difficult to see how our world will survive without increased development and innovation in the healthcare sector.

CHANGING WORLD ORDER. The US/China decoupling will continue and accelerate. Instead of globalisation, think ‘slowbalisation’. The war in Ukraine has driven a wedge between those, already weak, alliances. Russia, Iran, China, Saudi Arabia, India, (the BRICs+) and other countries are coming together to find ways to subjugate control over their regions and wrest control away from the US, especially in the use of payment systems in USD. The US will, of course, fight its corner, just look at its policies around the semi-conductor market which you will have read in my last E-zine ( ) What investment opportunities this will throw up is anyone’s guess, but the exportation of the US model of capitalism around the world, will slow and this could throw up new investment opportunities in new companies further afield.

BUMPY ENERGY TRANSITION. We are only going one way with energy policy, and that is more towards sustainable energy production; but, if you think we will be switching off the oil taps and shutting down the coal fields overnight, as many Eco groups would wish for, you will be very disappointed. (I will place a bet that in 20 years we are still using the same amount of oil as we are today, but that’s just a personal hunch. A lot of electric cars are going to need a lot of electrical energy from somewhere). A transition will happen but technology and storage of energy will need to improve, solar and wind power will just not make up our energy needs.

In addition, a little known point about the resources required for a sustainable energy transition: China dominates!

So, whilst the US imposes sanctions on China in the access to and production of semi conductors, China could retaliate with sanctions on the west regarding access to the materials needed to transition to our green economies. Yet, China needs to import 70% of its food from abroad as it is not able to produce enough to feed its population. The US is the biggest producer of agricultural products. So, from a bumpy energy transition we revert back to point 2, The Changing World Order. It will be an interesting time ahead for global politics.

TECHNOLOGICAL REVOLUTION. We have already seen so much revolution in this space since the year of my birth 1974 but the future will accelerate things even more. From next level automation in industry and daily life, 3D and 4D printing will become more the norm (I went to a fayre in Villa Borghese in Rome last Sunday and one stall was 3D printing some items on a wooden work bench) with the launch of 5G we will become even more interconnected, more reliance will be placed on cloud computing and storage of data, next-gen quantum computers, AI and controlled devices, cryptocurrencies, wearable devices…the list goes on.

And if that is not enough to scare you then check out the company recently purchased by Microsoft called ChatGPT. This is a learning AI application which can do just about whatever you want it to do. Think of it as an Alexa x 1milllion! It can provide you with any amount of information you need, ‘write newsletters’ – you just give it a subject and in seconds it will provide you with a written text on a certain subject, do maths, solve problems, write a website for you, some students are even using it to write essays at University. The scary thing is that it learns as it goes. Anyway, you don’t have to worry about my E-zine being written by ChatGPT; I don’t even think the best learned AI could imitate my crazy style.

And more food for thought
Rob Gordon (US citizen) from Dreihaus/VAM Investment funds thinks that Trump will win the Republican nomination again. But he thinks that Jo Biden, at 81 years of age when the election comes around, will win against Trump again.

David Coombes from Rathbones Inv Managers thinks that GBP will drift back into the range of 1.25/1.30 against the Euro within the next 3 to 4 years .

Lessons learned from this conference

This might sound like a sales pitch: something I try to avoid in this E-zines as they are written for information purposes only. However, whilst listening to our various speakers I became overwhelmed at just how complicated the world is becoming from a political, technological, economic and investment perspective. We can no longer ‘pick a stock’ and expect it will do well. Thought and research needs to be behind investment decisions. It’s easy to think that we can invest ourselves, be successful and then years like 2022 come along and there is nowhere to hide: stocks and bonds prices fall together, and then the only safe space is in some highly volatile areas of the commodity sector, which you wouldn’t normally play in. We need professional help and guidance to help us navigate these choppy waters head, but when there are so many changes afoot, it throws up the best investment opportunities. The investment managers and companies we use and talk to regularly are on top of these trends and can help you, our client, to get the best from your investments. The lesson learned from this conference: you are in good hands.

As always, if you have any questions about this E-zine or have any general financial planning concerns as a resident in Italy, or someone who is thinking of moving to Italy, then don’t hesitate to get in touch on email: gareth.horsfall@spectrum-ifa.com or on cell: +39 3336492356

So, it is with this in mind that I thought I would write something nice and Christmassy for you: Why it’s unlikely that China will invade Taiwan…..at least for the foreseeable future! What more could put our minds at rest this Christmas than a rational argument as to why China is unlikely to start another war in 2023 just when we have plenty of others to contend with.

OK, it doesn’t necessarily have a festive feel to it, I understand that, but I bought a book this year written by Louis-Vincent Gave who is one part of a company called Gavekal. They provide very high level statistical, political and economic analysis to businesses and governments around the world. They are quite famous in this area and their work is exceptional. The book is entitled ‘Avoiding the Punch: Investing in uncertain times‘. In it there is a section on exactly why China is unlikely to invade Taiwan, at least for now. Since this was a concern expressed by more than just a few clients this year (presumably given our Western media tendency to constantly be baiting us into believing that it is imminent),I thought it might make a nice E-zine to finish the year and give us some hope for 2023. As they say, knowledge is power…and I would add less angst!!! :0)

It’s all about semiconductors.
Yes, the whole business of China invading Taiwan and the USA threatening to protect the island, whatever it takes, is all about semiconductors but if, like me, you are wondering exactly what we use semiconductors for, the following should give you a quick answer:

Semiconductors are an essential component of electronic devices, enabling advances in communications, computing, healthcare, military systems, transportation, clean energy, and countless other applications.

In essence, they are now used in almost everything that we ‘need’ to run our daily lives. From your phone to computer to thermostat, clocks, TV’s, machinery in factories, the MRI machine at the hospital, wind turbines etc. We can’t live without them. So, for any nation state it is important to have access to the companies, and countries, that monopolise the manufacture of them.

Control of the market in chip making has for a long time been monopolised by the USA through the tech firm Intel. But, in July 2020, the US were taken aback when Taiwan Semiconductor Manufacturing Co (TSMC) announced that they had technologically leapfrogged Intel in the business of high-end chip making.

(The USA started a trade war with China over semiconductors in 2017/18 when they placed restrictions on the export of semiconductors to Huawei, ZTE and other Chinese companies which brought those companies to their knees).

Strangely, what might speed this process along (and a potential invasion of Taiwan) is America’s continued actions to strangle China out of the semiconductor’s market.  On 7th October 2022 the USA imposed new sanctions on China by restricting the supply of equipment and tools to any manufacturer of semiconductors in China.  Not only, but also any US person, green card holders and foreign national of the US are prevented from going and working in a Chinese semiconductor production facility without first obtaining a licence, therefore making it virtually impossible to do so.  (Strangling the ability for China to hire the talent to train their own engineers)

You might think this would slow China down, but it’s quite the opposite because as a result of these sanctions the Chinese government have now placed an even greater importance on the development of science and innovation in their economy.  The US sanctions have had the adverse effect of aligning Chinese business interests with the Chinese government itself.  Both are now convinced that they cannot rely on anyone but themselves and certainly must not be dependent on US (and its allies) sourced goods/materials.   Hence the Chinese government and Chinese businesses are collaborating to build domestic alternatives to imported technologies. 

The question of building a domestic semiconductor sector in China has moved from being a business decision to a matter of national security, and for businesses a matter of survival.  

So, you might be thinking what is the time line for China becoming self-sufficient in the manufacturing and technology surrounding its own domestic market for semiconductors?  The answer:  around 2030 according to various sources.  So, a Taiwan invasion, might be a few years off yet!  All the sabre rattling between the US and China is likely to be just that for some time to come.