Regular readers will have noted previous editions headed ‘Doomwatch’ and on one occasion, when markets were clearly going mad, ‘Eurphoriawatch’. My tongue may have been in my cheek on those occasions but I am in deadly earnest about ‘Instabilitywatch’. This is not the same as volatility or even uncertainty although they can be both the cause and effect of instability. Right now, investing profitably is getting riskier and investors would do well to look out for developments in politics, economics and business, together with those self-generated by financial markets, that could cause major upsets. Avoiding certain assets or limiting the damage to others from such upsets might be called (h/t George Bernard Shaw) ‘Applecart Investing’. In this edition I am putting forward a number of currently potential upsets but with a warning that these are at best ‘known unknowns’ (h/t Donald Rumsfeld). The trickier task is picking the apples that are most likely to stay in a still-standing applecart.
Three political developments that have the potential to cause major but not necessarily bad upsets: Trumpian Diplomacy, the new Italian Government and Brexit. However, there are plenty more to fret over: questionable global growth, rising inequality, climatic challenges, demographic crises, FOMC over-zealousness, oil-price inflation, a strengthening dollar, European banks, levels of corporate and private debt just about everywhere. Then there are the wildebeest tendencies amongst increasingly jumpy investors, many of whom are not even human. It might not be enough to let slip the dogs of depression and cry ‘sell everything’ but it is possible to see why some doom-mongers are already deep into apocalyptic territory.
Alastair Winter, Chief Economist