We launched MoneyWeek 22 years ago. There has been no shortage of crises since: the dotcom bubble collapsed within months of our launch; the global financial crisis followed; then there was Brexit (not that all of us considered that a crisis) and the pandemic.
Regular readers will know that we’ve spent most of these 22 years worrying about the way in which central banks have misinterpreted global inflation dynamics and about the long-term consequences of very low interest rates combined with loose fiscal policy. We worried that this has distorted economies, led to massive capital misallocation and driven most asset prices (from bonds to equities and houses to art) to bubble levels. There will be inflation, we said – and when there is, interest rates and prices will normalise. It’s taken (a lot) longer than we expected (Milton Friedman always said that inflation follows money printing with a “long and variable” lag). But here we are.
You can blame governments for over-spending. You can blame central banks for enabling governments with quantitative easing and negative real interest rates (there is no way the UK government could have built up the current levels of debt without their connivance). But whoever you choose to go for, the results remain the same. The age of cheap money is over. The age of overpriced equities is over. The age of negative interest rates is over. And the great bond bull market is over (the yield on US ten-year bonds rose to 4% this week for the first time since 2010). This means you are losing money: in equities, in bonds, on houses (when interest rates go up, prices go down) and on cash in real terms (unless perhaps you hold dollars and spend sterling).
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Not just a problem for the UK
It is tempting to think this is UK-specific. But while last week’s fiscal statement hasn’t helped us out in the short term (though it might in the longer term), most developed countries have much the same problems. This looks like a global turning point (although there is a chance that recession could bring back deflation and low interest rates next year).
What can you do to protect yourself? We hope you have done quite a lot already – we’ve been talking about funds that protect capital, the importance of value and the optionality offered by cash for some time. But keep an eye out for new value. In the UK, you can find – amid the carnage – the odd stock on low valuations. But remember that you are looking for long-term value: the short term is even more unknowable than usual.
Finally some news: it might not be the best time to be doing so, but after 22 years I am stepping down as editor-in-chief of MoneyWeek. I loved (almost) every minute of my time at the helm and I will not disappear completely. I will be contributing to the magazine occasionally and I will still be speaking at the MoneyWeek Wealth Summit (where I hope to see lots of you). However, for now I leave you in the exceptionally capable hands of MoneyWeek’s editor, Andrew Van Sickle, one of my first (and best) hires back in 2000. My thanks to all of you for reading me and for supporting the magazine for all these years – I hope you will continue to do so.
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