In the two weeks I have just been away with no phone signal and no Wi-Fi I can honestly say that I didn't think about the stockmarket once. Not once. However, you won't be surprised to hear that I have been thinking about it pretty much non-stop since my flight from Lerwick landed and I saw the Sunday papers.
To me it looked immediately as if the last fortnight has been one of the more dramatic of the last seven years one that has laid bare some of the fallacies of the great global recovery and stockmarket boom. But that's not how everyone sees it.
The vast majority of the commentary (outside MoneyWeek!) suggests that the huge market falls (China is down 22% in four days) mark nothing more than a "healthy correction". If you are in for the long term, says more or less everyone, you have nothing to worry about. Buy on the dips and look forward to a prosperous future there is no global recession on the horizon and with no recession there can be no bear market.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
This is mostly nonsense. Firstly, you can have bear markets without recessions. It isn't low growth expectations that makes stockmarkets fall. It is stocks priced for high growth, suddenly bumping into the reality of low growth and possible deflation. Anyone who has ever read Russell Napier's great book on bear markets Anatomy of The Bear: Lessons from Wall Street's Four Great Bottoms (if you haven't, now is the time) will know that all the great bear markets have been caused by deflation anxiety taking hold.
Right now, slowing growth in China along with its currency devaluation is creating particularly intense deflation anxiety at a time, when, as Russell points out, US equities are more expensive than at any time on record bar 1929 and 1995-2000. But how can the outright deflation caused by lower Chinese prices be prevented (the cheaper its currency, the cheaper its products)?
That's a tough question for central banks some six years into super-loose monetary policy. If almost non-stop money printing can't create real inflation or even keep stockmarkets rising for ever, it is hard to see quite what will. If you want to take any lesson from the last few weeks, it should probably be this: given that central banks clearly can't solve the world's structural economic problems, don't invest as if they can.
So what do you do? Keep more cash than normal in case things get worse (Russell thinks that China will keep devaluing its currency and keep creating deflation if he is right, things will get a lot worse), and in the meantime, keep your eyes open for value.
There are some possibilities in this issue of the magazine: some absolute-return funds that might actually do what they say on the tin, and for a super-steady income fund see David Stevenson's column. And if you want to invest somewhere where there is real growth, you might look to eastern Europe.
-
Cash in on the growth prospects of Europe's companiesOpinion Marcel Stötzel, co-portfolio manager of the Fidelity European Trust, selects three stocks
-
Is the AI boom another dotcom bubble?25 years on from the dotcom bubble bursting, is it time for investors to consider the sustainability of the AI boom in the stock market?
-
How capitalism has been undermined by poor governanceEditor's letter Capitalism’s “ruthless efficiency” has been undermined by poor governance, a lack of competition and central banks’ over-enthusiastic money printing, says Andrew Van Sickle.
-
The biggest change in the last 17 years – the death of the “Greenspan put”Editor's letter Since I joined MoneyWeek 17 years ago, says John Stepek, we’ve seen a global financial crisis, a eurozone sovereign debt crisis , several Chinese growth scares, a global pandemic, and a land war in Europe. But the biggest change is the death of the “Greenspan put”.
-
Things won't just return to normal – that's not how inflation worksEditor's letter You might think that, if inflation is indeed “transitory”, we just need to wait and everything will return to “normal”. But this is a grave misunderstanding of how inflation works, says John Stepek.
-
Car hire and the strangeness of the post-pandemic economyEditor's letter A global shortage of hire cars and unusually high hotel occupancy rates sum up the post-pandemic global economy in a nutshell, says Merryn Somerset Webb, with enhanced demand meeting restricted supply.
-
Everything is getting more expensive – including moneyEditor's letter Investors are about to start feeling rather more pain, says Merryn Somerset Webb – from the rising price of money.
-
We may be heading for recession – and it will be no ordinary recessionEditor's letter Just as the downturn in 2020 was not a typical recession. the next downturn could be very different too, says Merryn Somerset Webb.
-
What companies should be prioritising this decadeEditor's letter In a world beset by uncertainty, companies should be prioritising slack over efficiency, says Merryn Somerset Webb.
-
Inflation could soon start to hurtEditor's letter Inflation is not going away. And with people's wages not keeping up, things are going to start to hurt, says Merryn Somerset Webb.
