Notes from the Road Autumn 2024

What You Need to Know

In this note we summarise the key talking points that came up in meetings with investors over the last four months. We hope this is a useful summary of what is on investors’ minds and of our views on these topics.
The key issues that investors wanted to discuss were debt sustainability, hard versus soft landing and the appropriate allocation to real and private assets.

Periodically, we write up the key themes that have come up with clients in meetings. We hope this is a useful summary of what is on investors’ minds and of our views on these topics, which include debt sustainability, hard/soft landing and real/private assets. This edition reflects 57 meetings in recent months with clients in Asia, Middle East and Europe as well as videoconferences with people elsewhere.

We cover three themes in detail because they came up in many of our meetings with clients: debt sustainability, hard versus soft landing and real/private assets. We then briefly cover a broader set of topics that emerged to give readers a fuller sense of what is on the minds of investors we met with.

In addition to the topics listed below, it is always worth pointing out what topics were conspicuous by their absence. We had very few questions on the case for China, despite this period including the attempted Chinese economic stimulus in October 2024. Likewise, no one seemed to care about ESG issues.

Debt sustainability 

If there was one common key theme across a great number of meetings with different client types across regions, it is the sustainability of public debt. This is an issue across the G7 nations, but the US is the real focus of client questions.

The first thing to note is that any worry about debt sustainability is not about to change the reality of fiscal policy. Neither party in the US suggested reversing the fiscal trajectory in the run up to the election. Indeed, the cross-party embrace of expansionary fiscal policy implies that it will still be a common policy for whichever party wins the next election in four years’ time, exhausting though the prospect may be having just got through an election cycle.

Maybe one is so inured by the numbers that one doesn’t think about it. But what has happened to public debt is nothing short of extraordinary. Yes, there have been previous periods of strong growth in public debt, but for the US (and further back for the UK) such increases have always been times of conflict, especially existential conflict: the previous occasions have been the Napoleonic Wars, the US Civil War, WWI and WWII. No such existential concern has been responsible for the current debt build up. Indeed, fiscal support remains strong in the US, there is no recession and the Fed is cutting rates! The ugly conclusion is that this level of fiscal support is deemed necessary to support growth in US consumer spending. In an aspect that is often overlooked, high fiscal deficits in the US have also supported corporate margins.

Readers may ask, “What is the specific worry here?”. Many column inches have been written fretting about debt but without an obvious near-term effect. The concern is what path leads out of this challenge. We believe that the only viable exit route is inflation, and a majority of clients agree. There is also the possibility that this is reflected in a higher term premium being demanded.