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The Absolute Return Letter (ARL)

Superior investment results require that you deviate from the norm. In our monthly Absolute Return Letter we share our out-of-the-box macro view of the world and corresponding megatrends. Subscribers get the letter straight to their inbox about 1o times a year.

2023

January
The R Year
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We expect another challenging year for financial markets as poor economic performance will dominate the headlines.
February
Is the Bubble About to Burst?
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Household wealth was under pressure in 2022, and the chances are that it will continue to decline in 2023. Here is why.
March
One Year On
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What's Next?
The war in Ukraine is now in its second year, and there are plenty of things for investors to worry about, particularly in Europe.
April
How Terminal Is Terminal?
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Consumer expectations suggest a recession is imminent. Labour market statistics paint a very different story. Who should you trus
April
The Return of QE
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The pressure on central bankers to stimulate a stuttering global economy is immense, and that spells better times for risk assets.
May
The Return of El Niño
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La Niña has kept planet Earth relatively cool more recently, but she has left us now with some stark implications to follow.
July
Three Reasons to Moderate Your Optimism
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Some challenges are set in stone and are impossible to address, meaning that returns will likely be lower in the years to come.
September
China
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How serious is the unfolding Chinese debt crisis?
October
BTRY for Battery
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Solid state batteries will soon replace lithium-ion batteries, and the charging time will drop to minutes. Now, that will accelera
November
The Outlook for 2024-26
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Annual returns on equities have averaged 10-11% over the last 35 years. We expect only half that over the next 3 years. Why?
December
Boarding the R-Train?
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The US economy is about to slow. +5% every quarter is impossible. However, I do not see a recession unfolding in 2024.

2022

January
The Reincarnation of Fossil Fuels?
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It is this time of year again – what to worry most about as we enter another year? Inflation? China? Something else? Read on…
February
A Democracy on Crutches
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Are Americans facing civil unrest, possibly even another civil war? I suggest you read this before you put me in a straitjacket.
March
The Commodities Quandary
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Commodities rarely perform well when central banks begin to raise rates. Could the green transition result in a different outcome?
April
10% Inflation to Come?
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The war in Ukraine has elevated inflation fears to levels we haven’t seen since the 1970s, but who is likely to suffer the most?
May
Are Public Deficits Out of Control?
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Is Gold the Answer?
If interest rates continue to rise, it is only a question of time before we have a sovereign default or two on our hands.
June
Is Gold the Answer?
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Is gold the answer to out-of-control inflation? The short answer is yes but probably for a different reason than you may think.
July
The End of Indexing
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Logic suggests a regime change is upon us. Total wealth in society will shrink, and so will indexing. The only question is when.
September
The House of Cards
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Italy is going to the polls, and the Italian house of cards is at risk of collapsing again. Will it happen this time?
October
The Rise of Wealth-to-GDP
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… And the Long Road to Normalisation
Although US wealth has dropped recently, wealth-to-GDP is, as of the latest count, still 578% over there, implying trouble ahead.
November
Deforestation of Magic Money Trees
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By not taking inflation seriously enough, the Fed must make compromises on its twin objectives. What is likely to happen next?
December
2022 vs. 1979
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What can we learn from the Volcker years?
Volcker taught us many things, for example that extreme measures are important to get inflation under control. Does Powell get it?

2021

January
V for Vaccine?
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What should you worry about in 2021? COVID! There are many risks attached to the vaccine programme, some of which are not obvious
February
Will Brexit Lead to Bruin?
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The Cost of Absurdity
The UK-EU trade agreement entered into just before Christmas contains both pros and cons but most cons, I am afraid. Here is why.
March
The Global Economy Post COVID-19
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A V-shaped recovery is now on the cards but several challenges are lining up to threaten the sustainability of it. Read more here.
April
The Dilemma
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Why investments must be boosted but also why society may not be able to afford it
Governments need to spend lots of money to upgrade a delipidated infrastructure, but few can afford to do so. What happens next?
May
The Year of Living Dangerously
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How to structure your portfolio when interest rates are rising
Interest rates continue to climb, but what does that mean for equities? Three possible scenarios are lining up.
June
Supercycle or not?
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Why commodity markets have done so exceptionally well
In a world ravaged by COVID-19, how is it possible that commodities go from strength to strength? The answer is relatively simple.
July
Govcoin
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The first proper digital currency has arrived
Is Bitcoin a currency or should we wait for Govcoin to be rolled out? Thankfully, the answer to that question is relatively simple
September
The Healthcare (R)evolution
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Healthcare spending is growing rapidly, but can society afford it? First and foremost, the problem is changing demographics.
October
Why Much Wealth Must Be Confiscated
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Wealth has risen excessively in recent years. This month, you can read about why much of that wealth must be confiscated again.
November
When r>g
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What are the implications when capital market returns outstrip economic growth?
Wealth (r) cannot grow faster than GDP (g) longer-term. Why that is will be explained in this month’s Absolute Return Letter.
December
COP25½
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Was COP26 a fiasco? No, but the failure to include India and China in the agreement on the use of coal is troublesome. Here's why.

2020

January
The Known Unknowns of 2020
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Trump’s decision to take out Soleimani was a timely reminder that we face many problems, going into 2020. Here are some of them.
February
Five Lessons from History (1/5)
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Financial hardship often drive people to adopt views that were previously unthinkable. We look at what that really means.
March
Five Lessons from History (2/5)
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Mean reversion happens more often than not but is frequently ignored by investors. Think dotcom boom and bust about 20 years ago!
March
The Economic Cost of Social Distancing
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The economic costs associated with the coronavirus case outbreak are nothing short of staggering. Expect Q2 GDP to collapse.
April
Five Lessons from History (3/5)
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Whilst simple logic may tell you that something is not sustainable, what is unsustainable now may be more unsustainable tomorrow.
May
Five Lessons from History (4/5)
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Why is it that a fire in Australia attracts far more attention than a new innovation, and how can investors take advantage of that
June
Five Lessons from History (5/5)
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Wounds heal but scars last, and that goes for COVID-19 too. Thus, expect the economic recovery to be slower than many expect.
July
The Road to Equality
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Two American police officers ended the lives of two civilians and I expect that to affect financial markets for a long time.
September
The Sad Case of TINA
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Tina is an old friend of mine, but she is also a sad case of hubris and misguided pride. Here is why it will all end in tears.
October
Modern Monetary Theory Explored
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MMT is a controversial economic discipline which could make or break the global economy. Here is what you need to know about it.
November
A Constitutional Crisis in the Making?
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See why a US constitutional crisis could unfold in the days and weeks to come, should Trump lose on the 3rd November.
December
The Zombies Are Coming
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Zombie firms are in so much debt that all cash is used to service that debt, and that is very damaging to GDP growth. Here is why.

2019

January
Potential Pitholes of 2019
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It is time to look for pitholes one could fall into in 2019, and markets are behaving as if we have already fallen into one.
February
Another Zimbabwe in the Offing?
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What will central banks do with all the bonds they have acquired through QE? Could it ultimately lead to (much) higher inflation?
March
More on the Productivity Conundrum
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With the workforce in decline, we need brisk productivity growth for the economy to prosper, but the opposite is happening. Why?
April
Is Life Expectancy Falling? Really?
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Life expectancy has started to decline in some countries, and there seems to be a strong link between that and falling real wages.
May
Addicted to Oil?
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Changes to oil supply or demand have had an outsized impact on oil prices more recently. We look into the implications of that.
June
The Cost of Rising Populism
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25% of Europeans vote for a populist, and that has a disturbing impact on GDP growth, as more and more capital is misallocated.
July
Energy Misconceptions
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Investors are not always told the full story when investing, but that provides opportunities - in this case some significant ones.
September
Is Ageing Inflationary? Really?
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Is ageing inflationary or dis-inflationary? That has been intensely debated for years, but I have reached a conclusion now.
October
How to invest in a low growth world (Part 1 of 2)
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A classic approach to economic theory suggests low ∆GDP in the years to come. Why and what to do about it is what this is about.
November
How to invest in a low growth world (Part 2 of 2)
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As the second wave of the digital revolution unfolds, a shrinking workforce may not affect GDP growth as much as one would expect.
December
A Future Embedded in the Present
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We have reached a point where you need to think out of the box in order to deliver respectable returns. Here is what you should do

2018

January
My not so outrageous predictions
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We have enjoyed a long spell of rising equity prices but it won’t go on forever. Here are 5 reasons why the party may soon be over
February
The most hated bull market of all time?
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Equity returns are driven by ROE which is likely to drop in 2018, due to rising inflation but also because of the US tax reform.
March
An Inflationary Bust Or …?
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Recent events suggest we are now in final stage of the bull market. What will happen next? An inflationary or a deflationary bust?
April
The Inflationary Impact of Ageing
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Is ageing really inflationary? The academic world is divided on the topic, so I decided to do a deeper dive in this month’s letter
May
The Death of Fossil Fuels? Really?
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Last June, when Brent oil traded at $50, we predicted the price to go to $0 by 2050. Brent oil is now at $75. What is going on?
June
Investor Attention Deficit Disorder – aka the Goldfish Syndrome
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Human attention spans are getting shorter and shorter. That creates problems but also opportunities for the astute investor.
July
The Italian Job
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The new Italian government has dropped the gloves in its clash with the EU. Should we prepare for the worst? In the long run, yes!
September
Private Credit Demystified
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Following the 60/40 rule has been a great strategy, but the show is now over. Here is what you should do about the 40 in the rule.
October
The Productivity Conundrum
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Weren’t computers meant to make us more productive? Why is the opposite happening and what can we do about it? Read more here.
November
Will Lithium Sink OPEC?
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Electrification of everything will change the world we live in. Fusion energy will only make those changes even more dramatic.
December
The Art of Defaulting
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A debt crisis is looming, but how will it manifest itself? Through inflation, defaults or …? There are many possible outcomes.

2017

January
Hiccup of the year?
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With upcoming elections in the Netherlands, France and Germany, the year ahead could turn into a rather tricky one for investors.
February
Who Really Knows? An Open Letter to Howard Marks
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Why beta risk should be de-emphasised in 2017, and where we spot better opportunities.
March
A Note on Inflation: Is it here or isn’t it?
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Is inflation finally coming back? There are certainly signs that it is, at least in some countries.
April
The truth about Brexit
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UK exports to the EU, and therefore UK jobs, could be at risk. This is one of several issues our political leaders are concealing.
May
Investment Rules
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Investment rules equal LT success, so why do so many not follow any rules? Rules require patience, though. Is that the problem?
June
Oil Price Target: $0 (by 2050)
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Everything continues to decline – GDP growth, productivity growth, etc., and this letter explores energy’s role in this conundrum.
July
Are Robots Disruptive? … or could they be the saving grace for ageing societies?
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Disruption will cause massive changes for years to come. We look at advanced robotics and how they may affect the wider economy.
September
Two Sides of the Same Coin
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Bulls and bears disagree loudly, but both sides ignore the longer-term structural angle that we look at in this month’s letter.
October
Running Out of Freshwater
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The world is running out of freshwater, and much needs to be done unless we want a crisis to turn into a catastrophe.
November
The Lost Decade
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When living standards drop, you want something to change. That is what has happened in the UK.
December
Live and Let Die
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Why could we die younger than our parents, and what are the implications? It may not be good for us, but it isn’t bad for society.

2016

January
The Biggest Stories of 2016?
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Three stories that are likely to make the front pages in 2016, and their implications should any of them unfold.
February
A Frail New World
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Why is the outlook for GDP growth and for returns on risk assets uninspiring? Demographics is one of (at least) four factors.
March
If only we could blame China
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What is behind the steep fall in commodity prices? There are more likely causes than the economic slowdown in China.
April
A Different Take on Brexit
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The result of the debate is likely to be important for you and, like most things in life, the choices aren't black and white.
May
Abnormalities in the New Normal
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The impact ‘abnormalities’ (investment dynamics) that are behaving very differently post the 2008 Global Financial Crisis.
June
Is the Fed behind the curve?
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Looking to US: Is the Federal Reserve Bank too inactive, potentially leading to much more significant inflation down the road?
July
Thinking outside the box
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Major factors are driving inflation down. If no action is taken, the implication will be outright deflation and falling GDP.
July
Brexit Special: The Empire Strikes Back(wards)
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At ARP, we have had many inquiries about Brexit. As a consequence, we have decided to do a one-off Brexit Special.
September
Increase Returns at No Added Risk
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Returns on most asset classes continue to disappoint. What can you do to raise overall return levels? Think outside the box.
October
The New Normal, Mk.II
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GDP growth continues to disappoint – but we calculate GDP incorrectly!
November
Trump – another Brexit moment?
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The anti-establishment emotions in the US are no less pronounced than in the UK with the Brexit vote, so anything is possible.
December
A lesson in microeconomics – how to get the economy going again
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Macroeconomics have failed miserably in recent years, and it is time to approach things differently.

2015

January
Pie in the Sky?
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January each year brings a host of 'pie in the sky' forecasts. We instead focus on structural trends when analysing the future.
February
The End Game
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A closer look at a number of ‘end games’. The most likely outcome is a continuation of the slow growth we're currently have.
March
Tigers in Africa
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We discuss unrealistic expectations, like equity returns in the double digit range, or central banks printing money.
April
The ‘Perfect Storm’
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It is unlikely that the circumstances that created the exceptional equity performance during the last 35 years will be repeated.
May
How to dress for a rainy day
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The art of portfolio construction in a low return environment; in other words, where are the right – and wrong – places to be?
June
Are bond investors crying wolf?
–
There has been quite a dramatic increase in interest rates in most markets. Is the beginning of something much bigger?
July
A return to fundamentals?
–
Financial markets have behaved oddly since the near meltdown in 2008. Are finally beginning to see some sort of normalisation?
September
Doodles from an eventful summer
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We look at recent incidents impacting financial markets, discussing the Chinese slowing economy + the Euro zone and US situations.
October
The Real Burden of Low Interest Rates
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Interest rates are likely to stay low for many years to come. What damage can very low interest rates do?
November
Should FIFAA Be Red-Carded?
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We take a closer look at portfolio construction in a difficult environment.
December
The Next Driver of Productivity
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Lessons learned from the financial crisis, the impact of poor demographics, and the next major driver of productivity growth.