Wealthy Nations — October 2016

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September was not a good month for equity markets generally. Markets were less than impressed by the actions of major central banks, which failed to juice the system even more than has been the case for the last eight years.

Indeed, that has become the monthly, if not weekly, mindset: what are central bankers doing/ saying today that will give us a reason to buy more equities and take on more risk? This is a highly dangerous game for investors to play.

Our advice is simple: stick with economies that are growing at a decent clip (that amounts to anything more than three percent in real terms these days) and stick with countries that have not fallen into the negative/zero or near-zero interest rate trap. When interest rates fall to these levels they send the wrong signals to businesses and households (they send even stupider signals to investors but what are investors to do?). They tell households that they must save MORE in order to provide for old age and they tell businesses that there is NO GROWTH COMING, so why invest to expand?

The mess that central banks have created around the world will not be cleared up fast (it is no surprise to us, for example, that the World Trade Organisation is now forecasting that 2016 will experience the slowest trade volume growth since 2008). Low interest rates are grinding global growth down and setting up developed market equities for a huge fall. Stick with emerging markets with positive interest rates.

– Dr Jim Walker, 3 October 2016

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