Even the experts are finding it hard to make sense of the current investment environment.
I went for one of my long walks yesterday.
It’s something I try to do once a week or so, covering around 20km at an easy pace, giving me a chance to catch up on my favourite investing podcasts.
Over a few hours I can get around six hours of listening in by playing the audio at double speed. During these sessions, I never fail to learn something, often in an area where I think I am already fairly knowledgable.
The lesson in that there is always another perspective that can challenge your own thinking or make you aware of something you hadn’t previously considered.
Yesterdays session confirmed for me that I am not alone struggling to make sense of what is going on in investment markets. It’s as if the old rules don’t apply anymore and that something this time really is different.
For the uninitiated, I just wrote some of the most dangerous words in investing: ‘this time is different’.
It’s usually uttered during times of irrational exuberance as people convince themselves the good times will last forever.
Historically, it has been a great sell signal!
Anyway, it’s clear I am not alone in being utterly confused by what is going on. The global economy is falling in a hole, the total system is mired in record debt and yet stock markets are on a tear. It just doesn’t seem rational to me.
But then again, what we are going through now is different to almost anything we have experienced in our lifetimes.
The level debt in the system is unprecedented. One commentator said it is part of an eighty year debt accumulation process (that cyclically has been seen before) and ultimately will need to be reset. That comes via collapse of default or inflating away the problem.
Another podcaster pointed out the level of monetary growth in recent years. The money supply in the US has grown by 8% annually over the past five years. This is simply extraordinary and, by their reckoning, is the only thing keeping the system afloat.
All agreed that there was more money printing to come, from governments around the world. This is part desperate desire to keep the game going but also in the hope of sparking some inflation to diminish the real value of debt.
Of course inflation is already around in many areas - mostly what we need rather than what we want - creating a cost of living nightmare!
All the pundits came to a similar conclusion. Even if you don’t understand the current environment you can’t fight it. Just be prepared to adapt to whatever is presented.
Their take-out was that bonds are a time bomb waiting to go off. Cash will deliver negative real returns but is important as a safety valve. Property could be in for a bumpy ride if banks continue to tighten lending requirements and that stocks is where the free money is flowing.
They were also very positive on gold and silver bullion. One made the point that when priced in terms of Gold, the broad based US index the S&P 500, hadn't actually increased in real terms over the last hundred years or so. That says a lot about inflation and the difference between real and nominal returns.
Like every new paradigm, I am pretty sure this will end up in a big mess for many but it’s one case where the ride may continue for longer than seems rational.