We could be at the start of a shift in investor sentiment. It’s a shift that now acknowledges P/Es are too high, given we’re in a rising nominal rate environment. So while rising rates won’t derail the economy, they will derail investor sentiment. Which means P/E contraction will be the driving force behind this correction. So how should you invest accordingly?
In his big State of the Union address yesterday he laid down the plan - He’s going to increase the debt. A massive US$1.5 trillion infrastructure plan. Throwing good money after bad. Or should I say printing more money to pay off printed money. What to make of it all?
Central banks are the powerful beating heart of this system. They’re both the market makers and the price setters when they want to be. It’s a case of free market, what free market? Make no mistake, this is big government with big influence. If markets don’t slow down or correct by the end of 2018, the 2019 crash could be far worse.
The Bank of England (BoE) is responsible for monetary policy in the UK. They decide whether to move interest rates within the British economy. They do this to achieve a ‘stable’ rate of inflation. However, you need to ask - Is the current structure of government and central banks working? The future of financial and economic systems is with the new BOE. Except this isn’t the BOE as above...
Just because rates have been at records lows doesn’t mean they can’t go any lower. For one, there’s the Aussie property market to think about. However, by looking at what the big banks are doing, we can glean what the RBA is likely to do in the future.
Right now, pass the cash parcel is in full swing, and central banks are only very timidly trying to reduce the size of the parcel. That’s basically why you’ve seen the US stock market rise unimpeded for the past two years. Central banks are behind the curve. There is too much cash in the system given the positive investor psychology that is unfolding.
In today’s piece, from 16 November, Ryan explains what ancient Chinese proverbs have to teach the modern investor. He looks at why interest rates are inevitably headed up in 2018, and both the good and bad things that could mean for your investments.
As long as the big four can comfortably maintain their positions at the heart of Australian finance, it’s unlikely to change. There’s little competition for the big four, outside one another. But that comfortable position may not be as secure as they think.
Donald Trump’s long promised tax cuts finally passed. By reducing the corporate tax rate from 35% to 21%, Trump hopes to encourage US firms to repatriate capital and invest it at home. Tax cuts appease the right wing. Increased jobs and wages appease the working class. Everyone wins, right?
There’s still a shaky feeling around the global economy, as people worry what years of money printing and low interest rates have done. But that’s precisely why interest rates have to rise. And soon…