The Weekly Brief

Equity markets have seen a strong positive rally over the past 8 weeks. Is this rally likely to be sustained, or could we be close to another reversal as part of a continued bear market cycle?

Embracing uncertainty means knowing what we can know and knowing what we will never know. For investors it means focusing on what you can know, with some degree of confidence, and avoiding reactions and investments based on macro predictions.

What can we conclude from our discussion on false narratives? From the perspective of investors, these narratives drive major misallocations in financial markets, giving rise to bubbles, and anti-bubbles. Avoiding bubbles is important. Looking for anti-bubbles and investing in them can also produce considerable positive investment returns.

High inflation is plaguing the global economy, threatening living standards in industrialized nations, and risking lives in the developing world.  Understanding the underlying causes of this inflation is very important. This issue was already a major problem months before the Ukraine War started, looking there for blame is misguided. The cause of this problem was much closer to home.

Predictions of the imminent demise of fossil fuels are not only premature, they are a major cause of the energy shortages blighting the world today and will make the fight against poverty much harder. There is, however, an opportunity here for investors to take a contrary view.

False narratives can be dangerous for investors and must be avoided.  Parsing out the viable from the false narratives in markets today is critical to successful long-term investment returns. This week, we debunk what we think is the false narrative of 'de-globalisation'.

Over-reliance on backward looking economic data like GDP and unemployment often leaves investors behind the curve on market moves.  Instead, forward looking data is where investors should be looking as a guide to portfolio allocations.

Recent market declines create opportunities and new risks for investors.  Some are being tempted to buy the dip for the wrong reasons and in risky asset classes likely to continue falling.

Understanding the characteristics of this current bear market is critical to predicting how long it will last and when we can start thinking about the shape and timing of a recovery in asset prices.

With inflation at its highest levels in 40 years, interest rates rising,  and major declines in prices of speculative assets, it’s clear we are  in a new investment paradigm.  But within this fast changing environment  is a once in a decade opportunity for investors to shift strategies.