Pfäffikon SZ, Switzerland – You will not have failed to notice that the credit crisis is celebrating its 10th anniversary. The media pays much attention to the crisis and lists bullet points of what has been learned and what not. Interesting is also who have benefited from the remarkable policy of the central banks and who has not. Additionally, the financial landscape –and the associated valuations– has been thoroughly disrupted. However, a 30-year scenario seems to be off track, or is it not?
If you want to transfer your savings mortgage today, you have a problem. Moreover, when you look at your accumulated pension fund, you usually do not get happy. The policy of the central banks has disrupted the financial system. The flood of money has found its way in recent years, but the policy of the central bankers does increase the risk of bubbles. Starting market participants have no idea what risk they are currently measuring. Today, cheap money finds its way to, in particular, durable goods such as houses. As soon as more cash enters the system, inexperienced participants will systematically and independently generate bubbles. Even if a reference is made to the fundamental value of the underlying investment, the warning of the bubble is set aside.
Financial tightening is imminent, which will be accompanied by rising interest rates. Increasing interest rates do not have to pose a threat to the current economic recovery, even if you read something else in the mainstream media. The population group that has benefited from the broad financial policy of the central bankers is extremely small. This means that many citizens are financially struggling ten years later. It only needs an economic breeze, and we are cooked. Add to that the destructive power of the internet and the image is suddenly highly uncertain and financially weak. The moment for a collective wage increase has now arrived. In this way, citizens get the chance to organize their finances after the Great Recession better. Economic growth must be used to balance the financial relationships better.
First of all, the future looks bright. The world seems to be making a change in many ways, which will generate extra economic growth. The transition will be –as usual– painful for many. Additionally, we still live in a 30-year scenario. Capitalism and democracy are increasingly being tested, and inflation is approaching. When large groups fail financially, they will resist, both socially and politically; this is very similar to a 1930s scenario. The ideal situation is that in a subsequent recession the financial consequences will be mild, whereby laws and agreements will be respected. Unfortunately, the chance of panic is always great, especially in this era. Even the quiet, intelligent neighbor can be stricken during a 30-year scenario and fear subsequently. Should it come this far, then there is nothing else than to collect the pain. Excellent financial preparation is advisable.
It remains for me to wish you a good trading week.
Jan Dwarshuis is CIO at 1324 | by Thirteen Asset Management AG. Dwarshuis writes his columns in a personal capacity. 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 above mentioned shares and has no intention of doing so in the next 72 hours.