“Spring Charts” is a series of current financial topics explained in dots, lines and only a few words—just the right “mix” to concisely convey ideas for critical thinking about investing.
Over centuries, the written word has served as a powerful tool of evolving civilizations. Today, however, most of our society suffers from chronic attention deficit disorder (ADD), not only in terms of the ways we can or cannot consume information, but also in our collective ability to usefully apply knowledge. In this respect, the world of investing appears to have become among the most gullible, allowing for imbalances and, consequently, systemic risk to build within the financial system. With this strong intro in mind, we will make this blog entry a quick one, in both message and format: back to the charts…
Inflation and deflation continue to coexist, “defying” the common rules of textbook economics. A massive credit overhang in the global economy still serves as the catalyst for continued deflation and low economic growth (and related low wage growth), whereas accommodative central bank policy has been a driver of most asset markets.
The result is a socioeconomically unfavorable mix that has supported asset-price inflation (even bubbles) and those already in possession of assets. In contrast to these “gains” stands inflation in “pockets” not being captured by official inflation data, as well as a notable decline in the standard of living for the day-to-day consumer, who lacks investable means and has been subjected to a reduction in real income.
Investments tied to most governments in the developed world (and some in emerging economies) will, in the long run, not hold value—especially those with a fixed-income feature. Real assets (mainly equities and real estate) will be further supported by liquidity provided to the system, and investor sentiment, rather than true value, will largely determine directional trends. Relatedly, global society will continue to diverge, with socioeconomic imbalances building not only across, but also within nations.
Matthias Paul Kuhlmey is a Partner and Head of Global Investment Solutions (GIS) at HighTower Advisors. He serves as wealth manager to high-net-worth and ultra-high-net-worth individuals, family offices and institutions.