September 2026 Update

September, 2026

The best way to destroy the capitalist system is to debauch the currency
V.I. Lenin as asserted by J.M Keynes

The use of the US Treasury's General Account/balance sheet to curb rising upward pressure on interest rates stands in marked contrast to the message from the new Fed Chair, Mr. Kevin Warsh, that the rate of long duration interest should be set by the marketplace, with less 'jaw jaw' from the Fed on future rate policy. Which policy is going to prevail? At a time when demands for capital are rising from both public (budget deficits) and private (power and data centres) and inflation stubbornly present, interest rates should rise? It's not like there's a shortage of government paper now with 40 trillion $ of US Sovereign debt to service compared with about 6 trillion $ 25 years ago, nor that interest costs are becoming one of the biggest government expenditures! Lots of supply tends to lead to price falls aka higher yields.

The surge in the gold price (and crypto currencies) in August is telling us that monetisation of deficits is again a real fear and not a Rooseveltian one (the only thing to fear is fear itself). It's not only the USA which is seemingly fiscally incontinent, where the fiscal positions of the EU especially France , the UK, Japan, and the deterioration of Australia's, should give a richly priced bond market and ultimately the equity market pause for thought and reappraisal?

We nor anyone else knows what the level of dialogue is between Messrs Warsh and Bessent, but we'd better hope it is or becomes coordinated and prudent.

It has been our stance that inflation with some growth remains the best way out of this debt overhang and thus liquid equities represent the best way to hedge against monetary debasement or debauchery to quote Mr Lenin or was it Mr. Keynes? Anyway, and obviously at some point a reckoning is due with less spending and/or higher taxes and higher growth is required and desired. Having made a recent trip to both the USA and Europe we favour the USA approach to mobilise private sector capital investment to create growth and productivity rather than the European one of tax and regulate everything. "If it moves tax it, if it keeps moving regulate it and if it stops moving subsidise it" is not a policy framework conducive to private sector investment aka growth.

The UK will probably impose a windfall (confiscatory) tax on oil and banks quite soon. Both sectors already face higher taxes than they would in other jurisdictions. We own shares in neither UK sector.

From the bellwethers of BMW or Be More Worried (https://www.delftpartners.com/news/views/july-2026-bmw-be-more-worried.html) and VW (Very Worried) the ruinous impacts of European tax, energy and labour policy are finding their way to the leading indicators of economic growth and employment. VW CEO Oliver Blume declared his company's situation as "more than critical". We own no auto company shares in Europe.

We know the darkest hour is before dawn and equities climb before change is evident to all, but while we might have moved from 'denial' to 'recognition' in Europe, we do not see 'action' in any meaningful way in any European manifesto. Perhaps it's not yet, because the political swing to 'national industrial policy' and 'national interest' that occurred in the USA several years ago (and was much denigrated) appears to be gaining support in Europe, in part thanks to the ballot box. If you can see any real difference between 'tariffs' imposed albeit capriciously by the USA and a "Made in Europe" proposal which restricts imports from China in the auto industry and inward investment required to employ Europeans, then well done!

Interesting times. Suggested reading here would be The Mandibles by Lionel Shriver or for a reprise of history, When Money Dies: The Nightmare of Deficit Spending, Devaluation and Hyperinflation in Weimar Germany, by Adam Fergusson.

We were tempted to use fashionable Odyssean themes to illustrate the difficulty of policy choices now, such as Scylla and Charybdis (higher rates and a small recession with a few victims or sinking the whole capitalist edifice in a whirlpool of debt, debasement and debauchery) but resisted.

Elsewhere in August we had another 'wunderkind' in the hedge fund arena crash and burn. A Mr Leopold Ashenbrenner (Crashenbrenner? Ed) got his 400% levered A.I. knickers in a twist and was essentially taken out by the Wall Street 'Bros' whom he thought friendly and with whom he thought he belonged. Risk management requires careful assignment of positions to factors of which one is leverage, another is sector, and another is momentum - the portfolio seems to have been very levered; long hardware and short software which is a 'bet' on 1. sectors which have different profit dynamics, 2. a double 'bet' on momentum (long positive momentum and short negative) and 3. all the while moving at 4 times normal.

If investors now desire shorter duration assets, then the valuation of, and redemption clauses for, illiquid assets will come under greater scrutiny. Illiquidity is the enemy of portfolio rebalancing, and the opportunity cost OF AN INVESTOR THAT NEEDS TO BE ABLE TO WITHDRAW MONEY (ie a pension investor but not an endowment) is proportional to the cross-sectional volatility of liquid alternatives and one's skill in choosing amongst them. In other words, the illiquidity premium (if there is one) needs to be very high to compensate for this opportunity cost self-imposed by locking up your money.

The strategies were slightly negative in August as the A$ generally appreciated and we still choose to benefit from the diversification of being unhedged. The last couple of months has been tough for the Global 30 which is expected for such a concentrated portfolio. The diversified trust and infrastructure strategy returns have been strong relative to their stated objectives despite the market becoming "unpredictably irrational" as opposed to "predictably irrational"; the latter of which we prefer.

We made some trades of course. For the global diversified trust, we sold in Spain and re-invested into ENAV in Italy, an airport operator. We trimmed NYK in Japan after a rise of 15% in the month and reinvested into Murata a key supplier of Multi Layered Ceramic Capacitors. (MLCCs) - Multi-layer ceramic capacitors (MLCCs) are tiny electronic parts used to store and regulate energy, block noise, and stabilize power in almost all modern circuit boards. ie important. Murata dominates globally with Taiyo Yuden and SEMCO from Korea also key players. Murata's share price was hit in August when management declared they would not seek to raise prices aggressively in the face of rampant demand but would do the typical Japanese thing of supplying the market at stable prices to gain and maintain market share. Long term greedy probably beats short term price gouging? This also slightly reduces our tech sector underweight.

Lastly in a month full of stories, we note that a once owned highly profitable holding, Dick's Sporting Goods, suffered a c. 30+% price fall in one day as it announced poor results and downgraded expectations primarily due to the acquisition of Foot Locker about a year ago. We exited the last of our position in January 2026 hating the deal. Helping that decision to exit was keeping tabs on Nike, Adidas, Deckers (Hoka) and On which have all been under (share) price pressure as consumers seem unwilling to pay over the odds for shoes made in Vietnam and Indonesia. M&A is often a death knell to profit growth, at least for 2-3 years. Knowing this is another aspect of the Accounting Strategic Governance framework which we use to complement our quantitative stock models.

Delft Partners September 2026