Politicians take over: the biggest investment shift for the next 20 years

Politicians have been taking back control of monetary policy from the central bankers. This ends in inflation, says John Stepek.

Donald Trump and Jerome Powell
Donald Trump and Jerome Powell, chair of the US Federal Reserve: politicians are now in charge of the central bankers
(Image credit: © Drew Angerer/Getty Images)

The most important trend for investors for the past 35 years, let alone the last 20, has been the slow but steady drop in interest rates to today’s record low levels. The bull market in bonds (when interest rates fall, bond prices rise) began in 1985. As Robin Wigglesworth writes in the Financial Times, the last bond bull market of comparable length ran from 1873 to 1909, and we’ve now almost surpassed that. This headwind of falling rates, more than anything else, has driven the extraordinarily strong returns seen across financial markets – both bonds and equities – in recent decades. Will it continue for the next 20 years, or does regime change lie ahead?

We suspect the latter. We’re not the only ones. Indeed, Paul McCulley, former chief economist at Pimco (the giant bond fund specialist) believes that “if the [investment] ideas that have worked over the last 40 years work going forward, then democracy has failed”. It’s a dramatic way to put it, but his point is that the crushing of inflation has come largely at the expense of the man and woman in the street. “The reason financial markets have done well over the last 40 years is because we’ve been in a 40-year disinflationary environment… and that’s because we’ve shifted power in our economy, both domestically and globally, from labour to capital.” He believes the pendulum is swinging back, as populations around the world vote for change. And that means the old ways of investing won’t work anymore.

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John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.