March 2025
Dear Friends, Dear Investors,
Since we started writing these letters, you surely have noticed that we try to never be political. Everyone has his/her opinions and one thing that is certain is that no one will change his/her mind after reading them. Politics, however, cannot be ignored right now, as US decisions from anything to Ukraine to tariffs have a clear impact on markets.
Let us not be flippant, however. We have gone through Covid in 2020 (the whole thing started exactly five years ago) and the Ukraine war in 2022, and God knows people had strong opinions about these events as well. So, this is not our first rodeo in controversial times. We always advise clients not to read papers (or worse, social networks) too much, as the news is almost always depressing and tends to push you to not invest or reduce risk (generally at exactly the wrong time).
Take tariffs, for example. The economic variables are so numerous that it is impossible to predict whether their impact will be inflationary or deflationary. What is needed, however, is a clear framework.
That is, if the US states that tariffs will be imposed on certain commercial partners because of perceived unfairness, that is fine. But what matters most is that, once in place, they are clear and not changed from one month to the next. On that point, the latest news is not great, as they were first pushed back from February to March and then implemented only to be rediscussed 24 hours later.
That is the real issue, because companies will always adapt to changing conditions, what they cannot do is be unable to plan over the long term, which is exactly what is happening now.
Ukraine is the other issue. On that front, the US seems to have a clearer strategy: if Europeans want to offer security guarantees to Ukraine, they can, but the US won’t. Again, our opinion on whether this is good or bad does not matter. What matters is that this has triggered a massive response in Europe, in particular in Germany, where the self-imposed fiscal straitjacket in place for the past 20 years is being dismantled as we write.
This is very, very good news, because Europe will finally be able to grow and invest in crucial infrastructures that have been decaying. This is why European markets have been doing so well since the beginning of the year. In such an environment, quite a few, lesser quality, companies we don’t fancy investing in will do well. We advise clients not to chase those returns. The year is still young and, over the long term, only companies that add value for shareholders do well.
Best regards,
Your CaridaB Group Team
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