This is exactly why we have urged people to hedge and protect their investment portfolios. All year.
This is not some short-term aberration that people can walk away from and assume the market will magically go up.
The harsh truth is that global equity markets are only in the very early stages of pricing in a global economic downturn that is already in full swing.
There is in fact a significant risk of a triple recession in the northern hemisphere of the three largest economies in the world, Europe, the United States and China. China will be the first to emerge from this difficult period, but even there too moderate long-term growth is the new normal.
Europe will continue to be affected by war, sanctions and energy problems. The United States will have an inappropriate and blindly aggressive central bank that will only focus on inflation. Which is bizarre to say the least given its previous efforts to completely ignore rising inflation over the past year.
Everywhere, yes, the whole world will continue to experience both extreme inflation and real food or energy shortages for the next 12 months. This, as we have said all year, even before the Ukraine tragedy, is not an environment in which to buy stocks.
This is a long term fix. Not a short-term aberration. As such, we cannot know if this will be a 6-18 month correction phase or if it is in fact something much bigger akin to a downside 3 to 6 years of asset prices in general.
When it’s so easy to hedge investment portfolios these days, why take on such a degree of risk. I continue to suggest playing defensive in the current global economic and financial environment.
Markets likely to remain strong, regardless of the gains already seen and recent volatility, are the US dollar, gold and oil.
The world is full of opportunities as long as investors now play a good defense. In order to be in a position of relative power when the markets finally begin a new big bull cycle. At the moment we are only in the early stages of the end of the last great super cycle 2009 to 2021.
Chief Economist of ACY Securities. The views expressed herein are solely those of Clifford Bennett and do not represent the views of ACY Securities.
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