Doomsday Thinking
Pfäffikon SZ, Switzerland – The oil price and the dollar form the thread that’s been running through your investments this year. Fumbling communications – whether deliberate or not – by several central bankers take care of the rest. It’s ironic to see that the gentlemen from the Opeq do not want to be outdone by one another. So far Saudi Arabia is showing no signs of trying to limit the oil production, which leaves its traces. The oil state is headed for a budget deficit of around 20%. The result is that financial reserves need to be put into play to bridge the gaps. This year we’ve seen a small sneak preview of that.
Unpredictable
Market researchers label the Saudi behavior as highly unpredictable, which could lead to this year’s most dangerous so-called black swan situation. There is no point to predicting the oil price – positioning oneself well is a different story, which could take a while to pay its dividends. The current situation offers the investor many opportunities, but there are also dangers beneath the surface with certain companies that are active in the oil and gas sector.
Brexit
Another unpleasant event could be that of a Brexit. It goes without saying that the English are fed up with the EU after-taxes. The United Kingdom wants to increase the pressure to make the EU reform at a quicker pace, but the outcome remains uncertain. A possible Brexit could be the beginning of the end of the EU, with all the consequences it would entail. Meanwhile the cooldown – or hard landing, whichever you prefer – of the Chinese economy has not disappeared from the radar. This week, once again, we were able to experience how much the response to Chinese macro data is exaggerated. Doomsday thinking is hot right now.
Overburdened
Central bankers have driven investors into a corner. It’s as if investors are, only now, starting to realise they need to fend for themselves. The same applies to the central banker who will also leave you out in the cold. The monetary system is simply overburdened. Debt will need to be restructured and balance sheets will need to be tidied up. This is a process which will not be without fits and starts and will take a long time.
Is there nothing positive to report? Investors with endurance can already find a lot of value on the global markets. Looking past all the misery is, and remains, difficult. It’s too easy to forget that these types of tricky situations constitute the fertile grounds for attractive returns at an acceptable risk. One cannot rule out that the investment climate will improve over the course of 2016. Moreover, politicians would be wise to fiscally accommodate the economy now that central bankers’ stimuli are counterproductive. There is no room in 2016 for doomsday thinking.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above mentioned shares and has no intention of doing so in the next 72 hours.
