Russia’s invasion has accelerated the schedule of central bank tightening. Markets are now pricing ten 0.25% rate rises by the United States Federal Reserve in 2022.
Large parts of the Chinese economy are in some form of lockdown. China’s central bank is lowering interest rates while the West is raising interest rates. Capital flows out of China are accelerating.
Inflation risks are on the upside, although interest rates are rising, they mightn't rise as high as expected.
Capital allocations to price setting business and real assets are an investor’s best protection from inflation.
2021 was another harrowing year. Many businesses continue operating on life support. As we commence 2022, the Omicron variant reminds us that a return to normality is impossible to predict.
Meanwhile, markets remain near all-time highs, although cracks are emerging. The growing and ignored elephant in the room remains government debt. We explore how this might be resolved, and what impact this may have on investors.
While there is always something to discuss each quarter, markets are dishing up more conversation topics than usual. We provide our usual economic and investment commentary, with a focus on property, mounting risks in China and potential for ‘The Great Resignation’.
Our investment views remain aligned to those outlined last quarter, despite investment risk sentiment appearing to have increased. We share some out of favour views on cryptocurrencies and finish up this quarterly edition with some insurance industry specific news.
This quarterly provide an economic commentary in three parts.
We discuss stimulus settings in ‘Threading the needle’
Delve into inflationary expectations in ´Inflation - headache or head fake?’, and
Round up the discussion in ‘Rotation of risk’.
We finish with a brief overview on how we view investment allocations.
COVID has impacted labour markets in a variety of ways. Economists assume, perhaps correctly, that full employment (NAIRU) is closer to 4% than the historical 5%. But, what if rapid shifts in market functions have seen the non accelerating inflation rate of unemployment drift higher? We explore the idea that full employment might be closer than we think.
This quarterly discusses the increasing dislocation between the economy and investment markets. We dig into the machinations of quantitative easing and some of the adverse outcomes this has delivered. The quarterly then moves into an investment update, finishing off with how we are positioning portfolios.
Central Bank and Government Fiscal policy decisions are now one of the key determinants of shor. The scope for investors to continue to generate historically attractive returns from the current elevated asset prices has diminished. However, the prospect of not investing is equally unattractive.
The year ahead sees markets performing a high wire act, with central bankers and politicians holding opposite ends of the wire. We discuss the perilous journey facing investors below.
Noisy, chaotic, uncertain, bifurcated… Finding the right words to describe the economic landscape is about as difficult as moderating a petulant 2-year-old.
This quarterly seeks to provide some insight into what is happening in the world of economics and investing
