The 4th Pillar: May 2024

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A choppy month in the markets as investors try to extract a useful signal from all the noise. Economic data continues to be mixed with some encouraging signs of rebounding economic activity across the world tempered by conflicting signals on the health of the consumer economy.

Taking a step back though, the biggest story has been in Japan. The Japanese currency, the Yen, reached the lowest level against the US Dollar since 1990. Given the Japanese economy is still one of the largest in the world, that's a big deal that could have a lot of follow on impacts.

However, the reason for the Yen weakness is particularly instructive as it provides a window into the future of other developed economies.

Japan is often said to be operating 5-10 years ahead of other Western economies in terms of their monetary experimentation. They were the first to do Quantitative Easing and their debt to GDP ratio of 263% is way in excess of any other developed economy.

That has created a trap for Japanese policymakers. Investors are very happy to own US debt yielding 5% rather than Japanese debt yielding 0%.

However, it is very difficult for Japan to raise interest rates significantly from the current level of 0% because they would not to be able to afford the payments. So instead they allow their currency to depreciate.

It is exactly what we think will ultimately happen (and has been happening) across the developed world.

The difference perhaps will be that rather than one currency being weak relative to others, they will all depreciate relative to real assets. After all, all developed economies face exactly the same trap as Japan, but are just a little further behind.

That's why we are focused on real assets and why we think it is important not to get blindsided by all the noise.

This month we feature another high quality mining company that offers all the characteristics we typically look for in our investments.

Last month we explored the importance of copper– an ancient metal which has been crucial to human civilization and economic development for thousands of years. However, copper is just one of the key industrial metals we rely upon. Aluminium, zinc, lead and nickel are all “base metals” and critical parts of the industrial economy, alongside…

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