History of TS Lombard

In 2016, Trusted Sources (TS ) and Lombard Street Research (LSR) came together to form TS Lombard. We provide a logical and comprehensive analytical framework for understanding today’s world.

We provide something unique and important for investors – a powerful combination of macro-economic, political and thematic research across both developed and emerging markets using a genuinely objective approach that has been built and tested over 30 years.

To mark our 30 years of independent investment research, Charles Dumas, our Chief Economist, has written a brief history detailing our unique approach to forecasting:

“LSR had always been thoroughly global in its analysis, which had been largely confined to economics and financial markets since its foundation in 1989. Typical sell-side firms have worldwide coverage, but with analysts spread around the various key countries who mostly ‘go native’ and reflect the local conventional wisdom, rather than the global interactions that have been crucial to understanding the world economy since 1990.

TS had focused on emerging markets (EMs) since 2006. A key to the merger was that understanding EMs was all about politics. 2016 was the year in which the whole world ‘became an EM’, at least in the sense that only with political input could economic and financial analysis have a chance of reaching the right view of the future. To a degree this had already been proven for the advanced countries by 2010-13’s euro crisis, where the euro’s survival depended on purely political commitment by its members – arguably also by Japan’s post-1990 economic malaise. But the Brexit vote, the election of President Trump, and the evolution of populism in continental Europe put politics front and centre.

LSR was founded to restore monetarist analysis and an understanding of the importance of the financial system to economics. This blending of Keynesian and monetarist thinking was crucial to our successful forecasting of the financial crisis (GFC) in 2007-09, as well as numerous other important turning points before and since as shown in our track record. It is fundamental to monetarist analysis that movements in asset prices are key forces affecting the economy, so LSR has always blended its analysis with financial market forecasts – a linkage that is now increasingly understood to be necessary.

Proper monetarist analysis does not remove the need for understanding Keynesian perspectives on economics and markets. LSR’s focus on the flows of funds, both by economic and by institutional sector, was important to forecasting the Asian crisis in 1996-97 as well as the financial crisis just over a decade later (as well as how the one led on to the other). In Keynes’s day, the rigidities that caused him to deviate from pure laisser-faire monetarism were resistance to cuts in wages (at a time of deflation) and the ‘zero bound’ on interest-rate cuts. The latter has re-emerged as important since the GFC with $17 trillion of government bonds currently at negative yields.

But the balance of saving and investment that is at the root of Keynesian thinking depends for analytical force on understanding which elements in saving and investment are rigid or structural, and which are adaptive and thus act as balancing items. (All financial flows in the economy net to zero – for every lender there is a borrower, etc.) This character of rigidity or adaptiveness is not absolute, and can alter over time in response to price-driven feedback or other factors. But it has been clear that a nation or region’s character and history (and often demographics) are major sources of behavioural rigidity.

An important rigidity since the end of the Cold War and the emergence of China has been the very high savings rates in Asian countries, both before and after their ‘emergence’: Japan and Korea, therefore, as well as China and the SE Asian Tigers. This savings ‘glut’ (in relation to their investment needs) was a key factor identified by LSR economists in 1996 and then again in 2004, leading to the forecasts of debt splurges and financial crises. As politics comes to affect an ever broader range of aspects of the world economy, the forces driving key financial-market and economic developments will require a constant interplay between the three key branches of TS Lombard’s analytical capability: macro-economics, financial markets and politics.

So the way we operate continues the traditions of the past 30 years, but with the need for continual awareness of changes. The factors we have to blend to achieve innovative as well as sound analysis are understanding of history as the foundation of politics, strong attention to the numbers – our analysis is always fact-based – and imagination, as we strive to assess the likely reaction of key global players to the position they find themselves in.”

Charles Dumas, Chief Economist at TS Lombard