Consider This Commentary
17 October 2025
Hello again to all Financial Friends
My commentaries from the past and to date can now be found on www.yourfinancialfriend.co.uk using the tab Robs Commentary. I am particularly concerned that you consider the important points discussed in the commentary entitled:
The Best Investments
Rob Harris shares why traditional diversification may no longer be enough, explains the risk of negative correlation failing, and highlights specific assets to consider - from defence and infrastructure to gold, silver, consumer staples and AI-focused technology funds.
Please take a moment to go back and read the above commentary The upcoming Rachel Reeves budget at the end of November could be the trigger to upset the normal 'negative correlation' between the fixed interest bond market and equities. The perception of foreign investors of the soundness and safety of lending money to the UK government will be key to ongoing stability of the markets. How will the UK raise the funds it needs to preserve confidence in its economy? Raise taxes? Print more money? Borrow more money? Slash public expenditure or a mixture of all these things?
I had just written the above paragraphs at a point when the financial press had not picked up on my concerns when the next day CityAM published this headline:
Reeves Could ‘Trigger’ Bond Market Fright and Collapse UK Economy
Like many headlines that are there to catch your attention, this may prove a little dramatic. Nevertheless, students should take note and be aware. Our Chancellor of the Exchequer in 11 Downing Street has already implied she is looking to raise taxes and reduce public spending. Seemingly, this removes the need for further borrowing at the highest interest rates the UK has had to pay for 27 years. Reeves has to fill a so called estimated 'black hole' in our finances of £32 billion one way or the other.
Rachel walks a tightrope in trying to convince foreign investors that our economy is still sound and safe whilst filling the black hole and preserving the pathway for vital growth of the economy. Growth is the one thing that will to get us out of stagnation and repeated fears of economic failure. After Liz Truss, Rachel Reeves declared she would stick to her fiscal rules. This steadied the nerves of foreign investors who still perceived higher risk in lending money to our economy, thus driving up our borrowing costs.
The 'bond market' (where investors lend money to the UK government) traditionally has been seen as a safer place for investors money than the more volatile equity market. Investors pile into the equity market when indicators are positive but sell equities when fear arises. When investors sell equities, that money is switched into the 'safer' bond market. But here is the issue today. If the bond market no longer feels safe and equities fall where will investors money go?
Where Will Investors Money Go?
Over many months my commentaries have highlighted the need to consider diversifying funds across specific assets. Normal advice for normal times is for wide diversification across a broad range of assets without any conviction or based on economic conditions. For myself I sense the possibility that markets are in a bubble of profit which may burst where the bond and equity markets will both fall. The perceived bond market risk would mean that negative correlation will not work as normal.
This then is why, over recent times, my intuition and market awareness, built up over many years, alerts me to choosing specific assets. Such assets have sound reasons to consider them for the future.
Defence (5% of GDP to fund shares of companies in this sector). Infrastructure (Contracts securing income for long term projects to companies in this sector). Gold, silver precious metals (safe havens in times of uncertainty and war). Consumer Staples Funds (as rising taxes and inflation drive more income into what we have to buy to live). Technology with AI weighting (constantly an evolving but volatile asset supported by investors looking into the future).
PLEASE NOTE: A financial or economic commentary like these, are written to explain, interpret or give an opinion on economic events and markets to help readers understand what’s happening and why it matters. Designed to help you make informed decisions of your own by making you aware of opportunities, risks and potential rewards in the market.
