Global Market Commentary

February 2, 2015

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Executive Summary

1. Low inflation in the crosshairs of global central banks. From rate cuts in India, Canada, Singapore, and Peru, to the initiation of a large sovereign-bond purchase program in Europe, governments and central banks around the world are stepping up their fight against the anemic inflation — or outright deflation — that they see threatening their future growth and prosperity. There are continued geopolitical risks from Russian aggression, but we believe that if history is a guide, the expansion of the balance sheet of the European Central Bank will drive European stocks higher and the Euro lower as Euro QE plays out. Easing won’t solve the deeper problems that many economies have, but in the medium term, it will still support asset prices.

2. The next category in tech. Now that smartphones have become a commodity we have often asked ourselves where the next transformative shift will come in tech. We note that historically, such shifts have accompanied revolutionary changes in the user interface with computers. From keyboard and text entry, to the mouse and the graphical user interface, to the touchscreen, each shift has meant the production of billions of new devices. We believe the first signs of the next shift are appearing in “augmented reality” devices, from Microsoft’s new HoloLens to the top-secret project being developed by Magic Leap with a generous helping of cash from Google.

3. Bitcoin is not dead. (What follows is just for your information, and is not yet for investment purposes.) Bitcoin prices’ periodic collapses and inhuman volatility have made the cryptocurrency drop off the radar of many investors. Bitcoin itself, although much more robust than public opinion gives it credit for, may not be the virtual currency that ultimately wins out. We see that cryptocurrencies will be a permanent and very disruptive presence in the global financial ecosystem — disintermediating banks by performing the same functions in a distributed, peer-to-peer manner. However, there are many problems that must be surmounted before cryptocurrencies come into common use.

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