June 2026

“My monetary studies have led me to the conclusion that central banks could profitably be replaced by computers geared to provide a steady rate of growth in the quantity of money.”  Milton Friedman

Given the dominant role central banks play in the global financial system it should be expected that we should devote a disproportionate amount of time analyzing their actions.  Notably, in June, the ECB raised rates for the first time in three years, and we’ve had a leadership transition at the Fed amidst much fretting about compromised independence.  The degree to which central banks operate independently has long been a matter for debate, and Dr Friedman’s comment is a timely reminder that if political leaders were genuinely committed to independence, technology has long offered a solution.  In Europe, three quarters of the ECB’s presidents have held high political office, while incoming Fed Chairs have always been aligned with the sitting President’s party and are also generally politically active.  A well-earned reputation for competence can earn a bipartisan reappointment (eg Volcker, Greenspan), but at the end of the day these are political appointments and it is a tad idealistic to think that someone who has put themselves in position to ascend to such a powerful role wouldn’t have a sense of which way their bread is buttered.

Whatever the course of monetary policy henceforth there will certainly be welcome changes that should be adopted universally, namely the shift away from forward guidance and excessive communication.  The false premise that greater transparency of central bank thought processes create healthier markets rests on the fatal conceit that decision makers are infallible or possess information nobody else has.  An analysis of the track record shows that forward guidance suppressed volatility, spawn excess leverage (2003-07), and made it difficult to change direction as circumstances changed following the pandemic money printing binge (2021-22). The lingering effects of that excess liquidity are still a factor today, and one that the Fed will have to deal with sooner rather than later.  At the end of the day, despite the bleating about “greedy supermarkets and retailers” inflation remains primarily a monetary phenomenon.

Markets in June continued recent trends of tech driven volatility in stocks while bond yields treaded water at higher levels waiting for clarity on policy rates.  One of the beneficiary sectors of the sector rotation taking place has been bank stocks, which put in a strong performance particularly in Europe, as both capital repatriation and consolidation were strong themes in June.  We will receive Q2 earnings in the coming weeks and we expect these to be sector supportive.  Beyond that the summer period should be relatively benign in the absence of any geopolitical shocks.

For the month the fund’s A shares rose +0.46%, with gross contributions of +0.54% from credit and -0.03% from equities.  Our overall course has not changed, the portfolio remains defensive and well positioned.

JdM