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.
My life experience has been that the pessimists are usually wrong. But maybe no longer. I’ve an uneasy feeling that 2022 is going to be a bad year. Three serious potential military crises, any of which could erupt, perhaps simultaneously, constitute the biggest challenge to America and its allies in decades.
There are good reasons why investors should feel nervous about the immediate future. Although the world economy as a whole has recovered to where it was before the pandemic, many parts of it have been seriously damaged.
Retirement is a dangerous time. Much of your income is completely out of your control, determined by the state (your statutory pension), or by the contractual terms of your private pension. If things go very wrong because of huge unexpected expense such as medical, family crisis (you need to support a son or daughter), or a financial disaster, you’re very unlikely to be able to rebuild lost capital.
This year is the 50th anniversary of America’s decision to scrap the dollar’s link to gold. Until then, foreign governments could exchange American paper for federal government owned metal freely and without limit. Which increasingly they did, building a crisis that forced the US to abandon the dollar’s backing.
On Target Newsletter 2021.01.30 Martin Spring’s private newsletter on global strategy In this issue:Wealth taxes,Vietnam,Time to exit the bubble?,American politics,Oil shares,Electric cars,Precious metals,The dollar,Looming Threat to Your Personal WealthThe pandemic…