EDITOR'S LETTERMerryn Somerset Webb
Diversify and hold gold
Here at MoneyWeek we are often criticised for worrying too much. This week I wonder if our mistake in 2014 has been not to worry enough.
Our cover story looks at the impact of the extraordinarily fast collapse of the oil price on the global economy and markets. There’s a view, discussed by John Stepek, that cheap oil is mostly good because it cuts costs for consumers. We have sympathy with that view. But it isn’t that simple.
Why? Because the speed of this collapse makes the whole world more unstable. This is most obvious in Russia, where Muscovites, stunned by the implosion of the rouble, are queuing to buy high-end goods with their fast-devaluing cash (my suggestion last year that political risk is priced into the Russian market is starting to look foolish!).
But the effects go far beyond this. They go to other big oil exporters, such as Venezuela, even Norway. They might hit banks that have lent to oil-related ventures. They travel across all the emerging markets hit by investor risk aversion. And they make it harder for the world’s central banks to hit their inflation targets. Throw in renewed fears about deflation and social unrest in the eurozone, and you have to start wondering just how extreme the next policy our central bankers come up with might be.
So what do you do? I think you worry. It may be that this latest round of crises leads to more quantitative easing (QE) than we could have imagined, and that stockmarkets soar as a result. Or it may be that the deflationary bust, which investment guru Russell Napier has forecast for a while (watch my interview with him here) is upon us. It’s impossible to know.
So, as usual, we’d err on the side of caution. Diversify. Hold some gold. Stick with Japan. And hold some cash.
• Read the full editor’s letter here: Diversify and hold gold