Wondering what caused the stock-market swoon earlier this week? The clues are on almost every page of the newspapers and have been for months. In the UK, the minimum wage and auto-enrolment pension contributions made by employers go up in April. And a review of employment practices may award holiday and sickness pay to millions of workers in the gig economy.
In Japan, Prime Minister Shinzo Abe is demanding that employers offer 3% pay rises across the board. In Germany IG Metall, the country's most powerful union, has just won a 4.3% wage rise for 900,000 members and the right for all to demand a 28-hour working week (no, you aren't alone in wishing you were a metal worker in Baden-Wrttemberg). In the US, millions of employees are getting one-off bonuses, staff benefits are on the up (staff at Walmart are to get maternity leave for the first time) and in January average wages rose 2.9% on the year (a number so unexpected that mainstream economists insist it is suspect).
In short, there is a very good chance that the long period of very low inflation across the globe is fast coming to an end. This more or less confirms for us that we are on the edge of the biggest shift that most of us will see in our investing careers. For the last 30-odd years, interest rates have been falling. For the last nine, thanks to the great deflation scare and the scorched-earth monetary policies our central bankers deployed in reaction to it, they have been falling very fast indeed. Wage inflation (if it keeps going) means they will now rise possibly faster than the market expected.
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
Normalising wage growth and bond yields are good news: they tell us that there is a chance that for the first time since the great financial crisis the global economy is managing self-sustaining growth. We have felt for ages that central banks should give up on their extreme monetary policy now, if they want to stick to their inflation targets, they won't have a choice. Hooray. What all this does mean, however, is that you need to be more careful than ever about how and where you invest markets (being made up of the emotions and prejudices of their millions of participants) hate change.
So there will be no end of mini-panics of the type we saw on Monday. The most vulnerable investments will be those that have benefited the most from very low rates (property, companies with large amounts of debt) and those that have been driven to what the ex-chair of the Federal Reserve Janet Yellen calls "elevated" prices by cheap money.
It's time to look for stable, low-debt stocks at reasonable prices. That is more easily said than done, but we will, as usual, be on the look out. Most people won't think that Chinese internet stocks fall into this category but reserve judgement until you have read Rupert Foster's take in this week's cover story. You may end up a convert.
-
Who is the richest person in the world?The top five richest people in the world have a combined net worth of $825 billion. Who takes the crown for the richest person in the world?
-
Top 10 stocks with highest growth over past decade - from Nvidia, Microsoft to Netflix, which companies made you the most money?
We reveal the 10 global companies with the biggest returns since 2013. One firm has posted an astonishing 9,870% return, meaning a £1,000 investment would now be worth almost £82,000.
-
The dangers of derivatives as the “Goldilocks era” ends
Editor's letter This is no longer a benign environment for investors, says Andrew Van Sickle. But – as the recent pension-fund derivatives blow-up shows – not everybody seems to have grasped that.
-
What to do as the age of cheap money and overpriced equities ends
Editor's letter The age of cheap money, overpriced equities and negative interest rates is over. The great bond bull market is over. All this means you will be losing money, says Merryn Somerset Webb. What can you do to protect yourself?
-
Investors are bullish – but be very careful
Editor's letter Many investors are buying the dip, convinced the latest upswing is the start of a new bull market. The odds are that it’s not, says Andrew Van Sickle. The bear has unfinished business.
-
The MoneyWeek approach to investing
Editor's letter At MoneyWeek, our aim is simple: to give you intelligent and enjoyable commentary on the most important financial stories, and tell you how to profit from them. So how do we do that?
-
Celebrity bitcoin ads echo the subprime mortgage crisis
Editor's letter A wave of ads featuring celebrities punting crypto to the masses are reminiscent of how low income Americans were encouraged to take on loans they couldn’t afford, says Merryn Somerset Webb.
-
Will the UK's property slowdown turn into a house-price crash?
Editor's letter As the cost-of-living crisis intensifies and interest rate rise, it is hard to see reasons for UK house prices to keep rising, says Merryn Somerset Webb.
-
What sardines can teach investors about today's markets
Editor's letter A California tale of “eating sardines” and “trading sardines” can help us divide investments into speculative and real, says Merryn Somerset Webb. Something that's very useful when looking at today’s markets.
-
The market finally seems to be getting it
Editor's letter Reality checks are coming fast to the markets, says Merryn Somerset Webb – with even 2022’s safe havens beginning to reflect recession worries.
