“We must adjust to changing times and still hold to unchanging principles.” Jmiity Carter

There is a sense of irony in the UK today; not so long ago, Liz Truss’s government was vilified for presenting a tax-cutting budget that had not received the approval of the OBR. She aimed to stimulate growth via fiscal easing and empower the private sector to drive the economy forward. She did not go about it the right way; bond markets fell, sterling collapsed, and many homeowners blamed her for the sudden rise in mortgage rates, having become accustomed to paying very little in the way of interest rates for many years on their debts. I would argue that with the way interest rates were going anyway, with inflation way above the government target, inflation at the time was at a 40-year high, and with the ticking time bomb that the pension regulator forced many pension funds into called LDI, she was more the catalyst, than the cause to what would have eventually happened. My views are not entirely popular, but there they are.

Anyway, fast-forward to today, and Rachael Reeves is now under fire for increasing the tax burden in an attempt to restore the public finances while offering many public sector workers substantial pay settlements. Higher public sector pay further pressures the private sector to follow suit. The tax increases have had a similar effect but maybe not as dramatic as Liz Truss; bond yields have risen, and sterling is falling. Investors fear the potential negative impact on economic growth will require borrowing or raising taxes again, or cutting spending neither good for growth. Lenders want more for their risk; higher taxes risk further hits the economy, and it can be a vicious circle. There is already talk of another tax-raising budget in the coming months.

In Ms Reeves’s defence, she is not alone; governments across the globe are facing the same dilemma, having borrowed to support their domestic economies during the financial crisis, and then COVID has left governments with record levels of debt, less for investment, risks slower growth lower taxes and more borrowing. We regularly hear the debate about whether the US government will raise the debt ceiling again. Very low interest rates have sustained these higher levels of borrowing, but as rates have risen, the cost of financing this debt has risen, just as it does with a homeowner. Inflation rates remaining above the central bank’s target leaves them less room to cut rates and help out governments.

What does this mean for equities? Well, better returns in the fixed-income market make equities look riskier and less attractive.

Enough of that. A couple of other things to note: the death of Jimmy Carter at the ripe old age of 100. This man rose from very humble beginnings to become president of the USA, only in America. Whatever one views of him as a president as a person seemed held in the highest regard by those who knew him. One of the first to embrace the need for technology to improve the climate apparently.

We have been reading again about the tragic fires in California, which seem to be a regular occurrence at this time of year. Despite apparently many pleas from homeowners, authorities always seem totally unprepared every year.