Predicting the way 2020 will shape up will of course be dominated by the outcome of the December 12 general election – an unknown at the time of writing.
The range of outcomes is enormous. We could be back fully in the EU (in which case I recommend mimicking a plot scene as bizarre as Bobby Ewing stepping out of the Dallas shower in 1986, when we pretend the last three years were a dream), or we leave with a “Deal or No Deal”. So, its Patrick Duffy v Noel Edmonds – your guess is as good as mine!
The one thing we can expect in 2020 is continued volatility. Usually as Chartered Financial Planners we are asked to talk about volatility of the “markets” but everything is so interlinked at such speed nowadays that its foolish to talk about the investment space without considering the impact of a Boris Blunder, a Merkel Moment, Putin Posturing or of course a Trump Tweet.
Those of us who complained about the “bland politicians” of the 1990s and noughties after the tub-thumping 80s may be questioning our judgements now. The populists are on the rise and that can only mean one thing, a more divisive and volatile footing for all markets, which will be exponentially compounded by the rise of computing speed. Maybe we are living in a kind of “Frank Capra meets Terminator” movie? What we all need is to be far less aware of the noise that surrounds the above and refocus on the fundamentals of investing. By the time you have read anything about anything anywhere, the market has already bought or sold that item millions of times over, made its money and moved on. Providers like Bloomberg rent individual PC terminals to traders for around $24,000 per annum based on them delivering news just a few seconds earlier than other news outlets. The traders then make their trades and often rely on the normal retail clients to react to a hunch later with the professionals picking up the profits.
To counter this argument a lot of you investors will of course be able to recall a story of how well you have done with your ISAs or “Penny Shares Club” recently. A kind of amateur Warren Buffet or (until recently) Neil Woodford. But that is usually the same fallacy as a roulette player who has a system (for the record, you haven’t, it’s random, the house always wins if you play for long enough).
What all investors have been blessed with is a loosening of monetary policy by every large economy on the planet for nearly a decade. This glut of cheap money from central banks has inflated all asset prices across the board. In fact, likely the worse asset you have bought over the last 10 years, the more money you are likely to have made. So, what will happen to monetary policy moving forwards and how will it affect us in 2020 and beyond? This is likely to be the key long-term builder/destroyer of our savings and investments we are building for retirement. I don’t believe interest rates will jump up again to pre- financial crisis rates any time soon. The reason for that is the same people who owe the money (developed countries) are the ones who set the rates. It’s like turkeys voting for Christmas.
In the summer there were bonds in issue (bonds in this sense are debt vehicles) that paid negative interest (or that charged you interest effectively for holding your money!) worth $17 trillion (17,000,000,000,000 dollars – a lot!). From a UK perspective, at the turn of 2019 we owed around £1.78 trillion, which used up about eight per cent of all tax receipts to “service”. Therefore, if interest on these debts simply doubled, where is the extra eight per cent tax needed coming from? That won’t win any elections!
We have evidence that the fickleness and sensitivity of the markets in the last quarter of 2018, when the US dropped around 15 per cent in a couple of months. Then rebounded straight back. Missing that time in the markets could have written off the equivalent of 15 years interest in a bank account. Fifteen years!
So, invest in quality, diversify your holdings very wide, ignore the noise and buckle up tight for a bumpy ride. You will be tested, that is all I can promise for 2020 and beyond.
The article is out now in the latest edition of Capital Magazine.