Sebastian Lyon, chief investment officer, Troy Asset Management
“At a time when so much is uncertain, one thing is clear: government spending is back on,” says Sebastian Lyon, founder of Troy Asset Management, in his latest letter to investors. The US alone will spend $2.2trn to support its economy. And at the Federal Reserve, the European Central Bank and the Bank of England “the printing presses are working hard to offset the coming slowdown”. These steps are likely to mark the start of “a new chapter for the monetary backdrop”.
While deflation must reign in the short term given the collapse in economic activity, this “previously inconceivable” scale of stimulus measures “has laid the foundations for a rise in the rate of inflation”. Unlike the response to the global financial crisis in 2009 – which merely saw “the transfer of money onto bank balance sheets” – today’s stimulus places “increased money supply directly into the hands of those who might spend it”, which will be more inflationary.
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So Troy’s multi-asset funds – such as the Personal Assets Trust – hold gold as a hedge against “greater monetary instability”, as well as inflation-linked bonds. Cash is “likely to have its value eroded if real rates go more deeply negative”, but “for now it continues to provide essential dry powder for us to deploy” – eg, into large companies with stable demand, low debt and strong cash flows. These firms are “poised to enhance their already privileged competitive positions” as smaller rivals slash spending in order to survive.
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