Comment and opinion for retail investors in the UK
If you want to read an amusing article that seems to be about cocktails but is actually all about the correlation between economic inequality and the way it impacts consumer choice, go to the Guardian newspaper web site (April 4th) and look in the Opinion section for Richard Godwin’s article ‘Britain’s on the rocks…’
An inflation proofed consumer?
I am not sure about the ethics of investing in booze, but make you own mind up!
I note that in previous years I have adopted a ‘first quarter end’ review approach in writing April briefings. That still makes sense to me – we are now far enough into the year to get a feel for what will make 2022 different in economic terms and we can get an idea of what central banks are likely to do to try and manage economic growth and avoid a recession.
I did some crystal ball gazing in January and identified a number of risks. Of the potential negatives, inflation and increasing geo-political tensions have turned out to be the two most significant headwinds, although increased US regulation is now coming through and we have not seen the back of Covid19 yet, especially in the Asia Pacific region.
One factor that I touted as a momentum positive, ESG investing, looks like being a little less of a useful guide short term than I predicted. As the war in Ukraine and the associated sanctions on Russian energy have pushed the oil price up, so have the price of energy company shares, which will not fit in the portfolios of investors whose ESG filters are focused on sustainable energy and fossil fuel free energy production. This is a subject I address in the second part of this blog.
I will include my latest thoughts on markets and portfolio risks and opportunties in my monthly briefing, which will be published in the next few days.
In truth , nothing much comes to mind that is different to the thinking I have published in the last 2 or 3 weeks – markets have returned to a more stable and optimistic state and those who took up a buying opportunity in early March will have been rewarded so far.
In my monthly missive, I usually address a specific subject in detail with my objective being the broadening of my readers’ knowledge of the way in which investment markets work in reality and at times I address some of the underlying theoretical apsects.
I don’t have any topics in my queue ths month, so as I have done before, I invite all subscribers to email me with any topics you would like addressed in the style that you will know by know I adopt.
I try to treat my readers as intelligent experienced people who don’t want to be fed baby food but something more meaty, but not so esoteric or techincal as to be indigestible!
Please respond straight away if any subject comes to mind!
I refer to the sharp sell off and loss of confidence in fixed income markets that I have been predicting for a long time would be the certain result of an eventual end to near zero interest rates, plus a realisation that if there is going to be inflation, one has to own ‘real’ assets, like global equities.
The latter asset class may suffer if central banks trigger recessions by misjudging the pace of rate rises, but at the moment, the relatively hawkish approach we are seeing suggests to markets that the top economists are confident in the strength of labour markets and consumer demand and see their priority as holding back inflation. Stagflation is no doubt a risk, but markets are not seeing things that way.
With the truly horrific Putin’s war continuing to destroy Ukraine and kill hundreds of civilians, soldiers on both sides and sending Russia’s world status back to the Stalin era, it is difficult to think objectively about matters of as little consequence as the value of electronic vouchers for money.
But obviously, we must.
The general state of global equity markets this week could be described as ‘stabilised’. Markets particpants in both the equity and fixed income markets are now able to make some judgements about the likely impact that Putin’s war will have on world order, although any such assessments will be assuming the war does not escalate outside Ukraine, either to NATO member counries like the Baltic states and Poland, or to other former Soviet Union outposts like Serbia and Moldova.
My personal asssessment of the economic consequences are that the reduction of food, energy and other primary goods coming to the market, plus the potential shock of a major Covid 19 outbreak in China (which will reduce suplies of manufactured goods) will together make the problem that triggered the end of the long bull market in November 2021, that being a fear of runaway inflation, that much worse.
The headline may represent the main fear being expressed by investors at the moment. Of course, I know that uncertainty about the future, as opposed to specific fears will always be a heavy weight on global stock markets.
It is obvious that as long as the war in Ukraine goes on getting worse and the risk of interaction between Russia and NATO forces is on the table, stock markets are going to keep trending down. I note with some nervousness that some Russian public figures (including incredibly the leader of the Russian Orthodox Church) are rabble rousing for an invasion of the Baltic states and basically anywhere that was once in the USSR. Serious commentators are going into print suggesting that nuclear war is really quite possible.