Sleeping beauty wakes up….
Wednesday 27 August 2008
“Imagine you had fallen asleep a year ago and had just woken up, wanting to reacquaint yourself with the world economy. You would get quite a shock.” So says Chris Giles of the FT on August 5 2008.
“Just as it was last summer, global growth is strong. The International Monetary Fund expects expansion of 4.1 per cent this year, compared with an average of 3.4 per cent since 1990.
Inflation is the real surprise; today, inflation in advanced economies is at its highest rate since 1992, rising from 2.2 per cent in 2007 to an IMF projection of 3.4 per cent in 2008. For emerging and developing countries inflation is up from 6.4 per cent to 9.1 per cent, the fastest since 1999.
On seeing the data alongside high food and oil…your immediate historical parallel would not be one that is often drawn, with the early 1930s; it would be the inflation followed by stagnation of the 1970s. The IMF’s forecast of a slowing world economy in the second half of 2008 is entirely consistent with high commodity prices.
You would not have expected US interest rates to have been cut from 5.25 per cent to 2 per cent; for real interest rates across Asia to be negative and for European interest rates to be more or less the same as a year ago. So, a year into the big freeze in financial markets and the world economy bears all the hallmarks of overheating, not another Great Depression”.
The point is not what you have woken up to find, but when you went to sleep, could you have been able to predict what to expect with any degree of accuracy? Unlikely.
At the beginning of each fiscal year, investment pundits all trot out predictions for the FTSE in the year ahead. They have similar information, so how come they differ so widely? As Chris Giles implies, who could have predicted the outcome. Perhaps some pundits get it right, but that’s probably more by accident. I do not know any pundit who has got it right year on year. It is the risk of the unknown. Yet if an investor starts to accept and understand risk, then over time, they are more likely to gain from a positive investment experience rather than finding it has worked against them. Following the pundits is more likely to be a recipe for failure.
So how do you accept risk? Start by building your knowledge. It does not mean spending endless hours becoming an expert, but focus your efforts. You will find in this blog various studies that will help in this process. I am once again reminded of Aristotle who said in 384BC “Education is the best provision for old age”.
Categories: Asset Class Management, Research
posted by Murray Round Wealth Management @ 00:54,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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