Jacob Rothschild Annual Letter

Taken from annual report, RIT Capital Partners (portion of the longer letter.)

The world economy grew at a disappointing and
uneven rate in 2014 after six years of monetary
stimulus and extraordinarily low interest rates. Stock
market valuations however, are near an all-time high
with equities benefiting from quantitative easing. Not
surprisingly, the value of paper money has been
debased as countries have sought to compete and
generate growth by lowering the value of their
currencies – the Euro and the Yen depreciated by over
12% against the US Dollar during the course of the
year and Sterling by 5.9%. The unintended
consequences of monetary experiments on such a
scale are impossible to predict.

In addition to this difficult economic background, we
are confronted by a geopolitical situation perhaps as
dangerous as any we have faced since World War II:
chaos and extremism in the Middle East, Russian
aggression and expansion, and a weakened Europe
threatened by horrendous unemployment, in no small
measure caused by a failure to tackle structural reforms in many of the countries which form part of
the European Union.

However, in a world of zero or even negative bond
yields, equities may well remain the destination of
choice for investors. Furthermore, the majority of
companies are reporting profits exceeding forecasts
together with steady earnings growth. In Europe, the
combination of a more competitive Euro, an
aggressive programme of quantitative easing and the
yields available on equities, may well lead to even
higher valuations.

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