We are “fortunate” because we live in a democratic society. However, in a world where we can access information 7-days a week, 24 hours a day it is becoming increasingly harder to filter out the truth.
“Repeat a lie often enough and it becomes truth”, is a law of propaganda. There is an argument that we can sift through the lies, however “information overload” creates an additional challenge. There are many different examples of information overload but effectively the key one is the volume of information being created.
Over the last few years, we have faced different challenges – a decision to leave the EU, COVID, in Scotland the chance to break away from the UK etc. During all this there was a fierce debate. There is an argument that some of the information was not true, but it illustrates the challenges we face. I recently read a blog from “ourworldindata.org” and it included this illustration:
Basically, it took three pieces of information, which separately painted different pictures.
The press is a form of propaganda which looks to feed information that it wants us to read. This therefore makes decisions more difficult. A title of where the world is awful is likely to attract more readers than one which says the world is much better.
This is slightly out of date, but this shows the difference within the UK press.
Interestingly according to statista.com just 34% of people in the UK trust news media! Finland is at the top at 69%.
As we enter further into 2023 and we consider how to invest, reflecting all of this will help us approach things. Many do not know anything other than what has happened since 2008. In a world where there has been easy money, big tech has got bigger and the fear of missing out has increased what are the risks?
We have talked about misinformation, and therefore one of the greatest challenges is not to take things as gospel truth. Another area is to consider how we have done in the past and seek confirmation from others that the future will be the same. And then there is fear! This is about losing sight of what we are doing, and this may mean changing tact even if that goes against what others are doing.
We have an investment risk matrix which focuses on things we can see. In this we have recently moved interest rates and inflation to red. This is high risk. If we google what are the projections for UK interest rates you can get figures anywhere between 2% and 6%. Inflation is broadly similar.
If interest rates and inflation end up around 3% and 4%, that may seem high but in reality, this is about the average.
If we focus on today, then the markets seem scary. We can read plenty that tells us what we should be thinking. When we seek information then it is worth turning to history and data. The chart below shows the returns on different asset classes since 1900.
There are many charts which talk about staying invested, however hard this may be.
The question many are asking is when will markets regain confidence and recover the losses of the last 12 months plus? If we look back through history, what we really need to reset things is a recession.
Recessions are not always bad. From a market perspective this is when we can start to see a recovery. Whilst we don’t have this then we can see what is called counter trend rallies, where markets appear to recover and then drop back.
When we enter a recession, evidence shows that the market low tends to hit close to that point, and then recovery in markets is before the end of the recession.
The question is are we close to a recession?
A recession is a decline in economic activity spread across the economy. It can be a heavy or a light recession. Rising interest rates and higher inflation, in theory, should both lead to a recession.
The chart below is based on the US and different data points. We can see from this that the overall signal for the US is that we are close to a recession.
For investors this could be good news because history shows that markets reach their lows and recover during these periods.
Flipping back to the start of this blog, media will print what they want us to read. Economists will tell us what they think. In a period of information overload, it is very easy to get confused, to stick with what we know, but there are ways we can navigate times such as this. Data and history provide a real insight.
Can we say with any certainty where interest rates and inflation will end up. The answer is no. Do we think that they will go back to a normal range pre-2008, and the answer is probably yes. Will markets recover, the answer is likely yes. When will they recover? History would say we need a recession to get that recovery. Are we close to a recession? In the US, according to the data we are close to that point.
In all this what we know is that although it can feel scary and uncertain, staying invested is often the best way to move forward. It may mean tweaking and changing some of our investments to reflect a changing climate but ultimately everything shows that markets don’t just go up! However, over the long term being invested is the best way to save for whatever our future long-term goals are.
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