The end of the easy-money era rips the mask off the insolvent zombie economy. The world economy is lurching toward an unprecedented confluence of economic, financial, and debt crises, following the explosion of deficits, borrowing and leverage in recent decades.
Risk assessment should be the first step when choosing any investment. You cannot avoid risk entirely, nor should you – it’s the price you pay for the prospect of higher returns. Equities generally deliver higher total returns over the long term than bonds because they’re riskier.
China’s economic output will lag behind the rest of Asia for the first time this year since 1990, according to World Bank forecasts that highlight the damage done by President Xi Jinping’s zero-Covid policies, and the meltdown of the world’s biggest property market.
The biggest theme for stock-market and bond bulls has been the fountain of liquidity gushing out of central banks for the last 14 years. That has compressed yields and boosted the share valuations of companies that make the best use of cheap capital. But the situation is changing as central banks raise interest rates and withdraw their support from bond markets. It’s why valuations of high-growth giants have been falling.
Planning and managing your personal finances – a process that I have dubbed moneycraft – is a skill that I’ve written about for more than half a century. And I’m still learning.
Earlier this year I cashed in most of my shares – something I haven’t done since I was a young investor. Why? Because I reluctantly concluded that too many things were going wrong with the world economy… In combination they argue for painful recession, perhaps even depression. Look at the list of negatives…
Russia, having failed to secure the lightning victory it hoped for when invading Ukraine, has redeployed its armies to achieve more limited aims – conquest of the East beyond the Donbas, control of the Black Sea littoral as far as Odesa. But what will Moscow do if it fails – if it seems to be facing defeat in the Ukraine?
Inflation in the major economies is the highest it has been for 40 years, and is still rising. Shortages of fossil fuels driven by “don’t invest” climate mania and spin-off of the Ukraine conflict have sent energy costs sky-high. Interest rates are rising – the yield on ten-year US Treasury bonds has climbed to 2.85 per cent. Technology stocks, long-time investors’ favourites, are under pressure, as are emerging markets. After-effects of the pandemic such as the destruction wrought to major industries linger on, with continuing shutdowns in China. Yet stock markets on the whole remain remarkably resilient. What’s going on?
First there was the climate change lunacy, which has driven the prices of fossil fuels to new highs. The ironical consequence has been a mad scramble to get more of them – natural gas, oil, even coal. Then came the panic over superflu, combining savage business disruption with a cash-and-credit explosion. Now we have a war in Europe, with international sanctions producing the ejection of Russia, the world’s only full-spectrum commodity superpower, from the global financial system.
Regular portfolio reviews are critical to investment success, especially after big moves in the equity, fixed income and currency markets that can occur from time to time. Unfortunately, many expats never get around to reviewing their portfolios or if they do, don’t approach the process in an organized way that will get results over time.