This is not 2008.
The depressing communications from our Bank of England yesterday certainly made for gloomy reading, and for good reason.
Nobody wants to be told that there is a recession on the way…’oh and by the way folks, it’s going to be a long one’.
The media feeding frenzy then begun as reporters quickly linked up the dots to try and paint their own frightening comparisons.
‘The last time we had a long recession was in 2008’ they firmly asserted and then they rushed around the country asking people where they were when the 2008 crash happened……’well I was a student on holiday’…….begins the first ‘victim’ as the interviewer sympathetically attempts to build their story. At this point, I turned the radio off.
I clearly remember the 2008 crash as many of you will also do. I remember sitting next to Lisa in our living room on the Sunday evening that Barclays withdrew their bid to buy out Lehman Brothers and realising the horrific impact that this was likely to have on all of our finances.
The damage was systemic, with banks literally being hours away from running out of money in their cash machines. Governments had to swiftly bail out their banks to the tune of eye-watering amounts. The credit bubble gravy train had ended and the carnage was brutal.
Today, we are faced with such a different set of circumstances. Companies are generally in good health, Banks are well capitalised and a notable Bear Market Crash already happened several months ago in the world’s largest two economies.
The issue now is inflation. You will know this, even if you have been living without the news for the past year!
Those of you who followed my videos throughout the Pandemic will recall that I made several references to the danger of QE by central banks and the unintended consequence of the inflation juggernaut. It would seem that central bankers at the time decided this issue could be pushed further down the road, perhaps they hoped it would not come.
There are three things that have been predominantly causing inflation in my humble view. These are:
But wait! Points 1 and 2 are largely now historical. This is the frustrating thing about central banks that have to rely upon historical data to map out a future probability. In many ways, this is no different to the Covid modelling that we witnessed back in 2020, which forecast almost Armageddon like outcomes.
The chances are that we are already in a small recession and have been for some time, however, the central bank methodology hasn’t picked this up yet.
It is also possible (though not certain) that global inflation is already cooling, as being shown in US Treasury yields and other new data coming from America.
And really this is the point I want to finish on. The UK economy is not the only game in town from an investors perspective. Indeed, it is a small part of the overall Global picture. The key economy to watch here is the US with China a close second.
At the moment, the US is enjoying a nice period of recovery. There is a real chance that there will be some technical sell-offs as investors pause to take profits, but all the early signs of market recovery are evident. The impact upon our client portfolios of a buoyant US market dwarfs the impact of a UK ‘recession’.
2008 was all about ‘trouble in America’ that systemically then spread to our economy and markets. 2022 is a very different scenario that offers investors real opportunities to quietly pick up gains whilst waiting for the tide to come back in…….which it will.
As ever, we are here for you if you have any questions at all. Don’t let the media get you down and have a lovely weekend.
My very best wishes.