All,

The key question that kept coming up in the last few months is what the impact of Trump phase two will be on our business and consequently our individual prospects.

It came up at the board level, in every external conversation, and lots of individual conversations. At the individual level, people are concerned about the impact on US visas, Green Card applications and mortgage payments.

My honest answer is I don’t know. As I said in many MEMOs in the Covid era, I don’t have a crystal ball and futurology isn’t an exact science at the best of times. The advice is to pay attention and get into the habit of thinking for yourself rather than blindly following the herd (don’t be a sheep).

Digging in a little.

The first question, has yesterday evening’s announcement on “tariffs” heralded the era of economic shockwaves?

The answer, almost certainly no, the era of massive economic shockwaves started in March 2020 with the global lockdowns and massive fiscal intervention. We’ve been living economic shockwaves for 5 years. It is a beautiful spring morning in Belfast today. Crisp, crystal clear blue skies, the trees outside my home office abuzz with vernal birdsong. A time warp. It could be April 3rd 2020.

That said, what we are almost certainly seeing this week is the end of the era of peak globalism. In March 2020 all countries followed the playbook in unison, billions of citizens all around the world got locked down, combined with massive and coordinated stimulus measures. Individual thinking was abandoned at the government level. The move on tariffs is arguably the polar opposite, the end of globalism, or at least a major setback.

Jon Lambert has been my philosophical business partner for the last decade. We’re both children of the 1970s and 80s. We both grew up in family farm businesses during those waves of economic turmoil. Some of our formative memories are of our parents fighting about overdraft payments and the like. Fights prompted by extreme debt loads on the family business as interest rates spoke to 15% and actual rates reached 30%. I’d the very good fortune to grow up in a very calm family. The only fights I ever remember were about the overdraft.

These formative experiences shaped a common life and business philosophy. On the one hand, in our personal lives we stayed debt free. We didn’t buy our first houses until we could pay for them with cash. Similarly, we didn’t buy our first cars until we could pay for them with cash. An acute awareness that interest payments can go up, welded deeply into the psyche. Don’t get into the habit of spending future earnings today. The cost could be a lot more than you expect. Asset prices don’t always go up either. A lesson learnt the hard way by everyone who bought houses here in the run up to the credit crunch. Most are still in negative equity twenty years on.

This flowed into our business philosophy. We always set out to run profitable cash positive and hence self sustaining businesses. Very unusual in the current era, especially in tech. It hasn’t held us back. We emphasise profitability and return on capital in every board meeting and town hall.

The core of our philosophy though is slightly different, focussed on personal agency. We both set out on different paths with a common goal. To build long term expertise in management, running businesses. That philosophy is based on one big idea, to build an edge in running companies. Our belief is that anyone can make money in a boom, but management teams with actual edge will outperform in turbulent markets. We embrace the turmoil as an opportunity to dramatically outperform the competition. Great teams step up and thrive when the going gets tough.

What to expect in the coming years?

Now the tariffs have come to be my base case is that there will be at least five years of huge economic waves. Once complex systems start to oscillate wildly they will swing in one direction or wave for a few years, get to extremes, then correct in a back wave to the opposite extreme for another few years. It is impossible to predict what these waves will be, best pay attention, but there will be shockwaves. The goal is to surf these waves, rather than get crushed by them.

Farming in the 1980s served up some great examples. The US currency collapse at the stat of the decade (weak dollar) meant everyone was buying US manufactured tractors (International). A few years later the dollar had surged and farmers couldn’t afford spare parts. Similar phenomena are already starting to appear with computer hardware.

In the UK, right this moment, factory and household energy costs are running at 6x those in the US or China, strangling households and effectively killing UK manufacturing. These sky high relative costs are arguably a function of, a weak currency, some major blunders on gas storage, shutting down North Sea production while importing Norwegian gas drilled just a few miles on the other side of an imaginary line, and pumping hundred of billions into the most extreme zealous pursuit of what is a globalist net zero goal, an objective the big players (China and the US) are largely ignoring. Five years from now all these (arbitrary) trends could have reversed, alongside a strong currency. Things might just be very different.

The bottom line: we will pay attention and aim to grasp the opportunities to outperform served up by the turmoil.

Cheers,
Danny