Young Research & Publishing Inc.

Investment Research Since 1978

Disclosure

  • About Us
    • Contributors
    • Archives
    • Dick Young’s Safe America
    • The Final Richard C. Young’s Intelligence Report
    • You’ve Read The Last Issue of Intelligence Report, Now What?
    • Dick Young’s Research Key: Anecdotal Evidence Gathering
    • Crisis at Vanguard
  • Investment Analysis
    • Bonds
    • Currencies and Gold
    • Dividend Investing
    • ETFs & Funds
    • Investment Strategy
    • Retirement Investing
    • Stocks
    • The Efficient Frontier
  • Investment Counsel
  • Retirement Compounders®
  • Free Email Signup

Investors Must Survive Volatile New Geopolitical Economic Landscape

September 12, 2022 By Jeremy Jones, CFA

By Lightspring @ Shutterstock.com

Investors are facing many reversals of trends that have been prevalent in markets for decades. Globalization that had a calming effect on markets is turning into reshoring and nearshoring. Fiscal policies that are supposed to suppress inflation are probably going to encourage more of it. Stephen Miran writes at Barron’s:

Despite the market fireworks, the most important speech at last month’s Jackson Hole conference wasn’t given by Federal Reserve Chairman Jerome Powell. It was delivered by Agustin Carstens, head of the Bank for International Settlements and former governor of the Bank of Mexico. Carstens is a significant global policy maker, but it was his message that mattered most. Recent economic volatility is not a fluke, he argued. Changing global megatrends will reshape the entirety of the global economy, forcing a serious rethink of economic policy.

These forces have significant implications for asset markets, and investors should take notice.

From the early 1990s to the late 2010s, confluent megatrends drove low volatility in growth, inflation, and asset markets. Carstens emphasized globalization, geopolitics, and demographics, but the economic mix was significantly broader than that. Monetary-policy makers intervened with interest-rate cuts and quantitative easing whenever there were hiccups in the stock market. Fiscal policy makers provided bailouts to banks in 2009, and broader support to households and small businesses in 2020.

Corporations, recognizing the presence of a policy “put” beneath economic growth and markets, took more risks. Retailers and wholesalers developed just-in-time supply chains, manufacturers exploited cheaper labor abroad, and financial institutions took leverage that would make a loan shark blush. Antitrust and industrial policy went dormant.

Carstens’ speech gave voice to what has been apparent for some time: Not only have the volatility suppressants stalled, but they are also reversing. Fiscal and monetary policy are now driving volatility higher. Lest you think policy makers have found religion on inflation, consider that the Biden administration is still pushing in the wrong direction. New student-loan forgiveness will make a hole in the federal balance sheet multiples of the total deficit reduction provided by the Inflation Reduction Act. The IRA itself will further distort the supply side at a time of grave supply-demand imbalance.

Antitrust policy has been resurrected, as Congress and the Department of Justice rethink the role of Big Tech in our economy and society. Geopolitics is back, with a vengeance. Risks from China, Russia, and elsewhere have underlined that companies cannot rely on stable trade relationships for either customer demand or supplier inputs. Not only might a business find its operations disrupted by a sudden and absolute Covid lockdown, but it could also find trade with its customers or suppliers suddenly illegal due to sanctions. The lesson for both governments and businesses is an increased emphasis on resilience. You cannot allow your supply chain to be at the mercy of Chinese politics, land wars in Europe, or natural disasters.

Companies are responding to the geopolitical sea change by moving from just-in-time to just-in-case supply chains, reshoring production. Washington is responding by reviving trade policy, and now industrial policy aimed at moving critical technologies and resource production back stateside, as in the recent bipartisan Chips Act aimed at semiconductors. However, the rollback of globalization is inflationary and will contribute to the Federal Reserve’s dilemma. Solving one problem exacerbates another.

There are two significant implications for investors. First, companies with the most secure supply chains and customer bases are less exposed to recurrent shocks originating abroad, and face fewer necessary capital expenditures to secure themselves. That means that companies with a strong focus on U.S. jobs, security, and growth should be expected to outperform in this dangerous new world.

Second, volatility will probably remain persistently high. The Fed’s independence lets it move fast, but it can’t fix many of the nation’s economic problems. Those require supply-side solutions legislated through Congress, which is slow. Once enacted, supply-side policies can take years to work their way through the economy.

Read more here.

Share this:

  • Email
  • Twitter
  • Facebook

You Might Also Like:

  • Investors Devour Bonds
  • Skittish Investors Flock to Silver
  • Are EV Investors Just Delusional?
  • Author
  • Recent Posts
Jeremy Jones, CFA
Jeremy Jones, CFA, CFP® is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. CNBC has ranked Richard C. Young & Co., Ltd. as one of the Top 100 Financial Advisors in the nation (2019-2022) Disclosure. Jeremy is also a contributing editor of youngresearch.com.
Latest posts by Jeremy Jones, CFA (see all)
  • Money Market Assets Hit Record High: $5.4 Trillion - May 26, 2023
  • The Mania in AI Stocks Has Arrived - May 25, 2023
  • The Wisdom of Sam Zell - May 24, 2023

Search Young Research

Most Popular

  • Your Survival Guy Felt Like a U.N. Worker in Rome
  • The Mania in AI Stocks Has Arrived
  • Money Market Assets Hit Record High: $5.4 Trillion
  • Your Survival Guy in Rome 30-Years A.B. (After Babson)
  • The Future of the American City is This…
  • Vanguard Wellesley (VWINX) vs. Wellington (VWELX): Which Fund is Best?
  • A Three-Week International Research Trip to Paris via Rome
  • Is an Investment Property Disaster Looming?
  • Letter to the Federal Reserve Chairman from Your Survival Guy
  • The Power of a Compound Interest Table

Don’t Miss

Default Risk Among the Many Concerns with Annuities

Risk and Reward: An Efficient Frontier

How to be a Billionaire: Proven Strategies from the Titans of Wealth

Cryptocosm and Life After Google

Warning: Avoid Mutual Fund Year End Distributions

Is Gold a Good Long-term Investment?

How to Invest in Gold

Vanguard Wellington (VWELX): The Original Balanced Fund

What is the Best Gold ETF for Investing and Trading?

Procter & Gamble (PG) Stock: The Only True Dividend King

The Dividend King of the North

You’ll Love This if You’re Dreaming of an Active Retirement Life

The Importance of a Balanced Portfolio

Invest with Peace of Mind and Comfort

What Kind of Life Are You Investing For?

RSS The Latest at Richardcyoung.com

  • Rewarding Loyalty with Ridicule
  • Rome, Paris, U.S.A.: Global Crisis in Confidence
  • June Is Retirement Compounders Month
  • Americans Scared of CBDC Control of Their Money
  • Your Survival Guy’s Best Insider’s Guide to Rome
  • Auto Profitability Colliding with Low Emissions
  • Birth Rates in France Worst Since Post-WWII Era
  • What Binds the Woke Left Together?
  • Joel Salatin and Alfie Oakes, America’s Food Kings
  • The Party Is Going Off the Rails

RSS The Latest at Yoursurvivalguy.com

  • Rome, Paris, U.S.A.: Global Crisis in Confidence
  • Your Survival Guy’s Best Insider’s Guide to Rome
  • What Is a Fiduciary Duty? Are You Working with a Fiduciary?
  • Survive and Thrive June 2023: Your Survival Guy in Rome 30-Years A.B. (After Babson)
  • Birth Rates in France Worst Since Post-WWII Era
  • Your Survival Guy Felt Like a U.N. Worker in Rome
  • Social Security: Declining Italy Needs a Bambino Boom
  • ATTACK ON THE IVAN KHURS: Unmanned Vessels Changing Naval Warfare
  • The Future of the American City is This…
  • Happy Memorial Day: Your Survival Guy: Proud To Be an American

About Us

  • About Young Research
  • Archives
  • Contributors

Our Partners

  • Richard C. Young & Co.
  • Richardcyoung.com

Copyright © 2023 | Terms & Conditions

 

Loading Comments...
 

    loading Cancel
    Post was not sent - check your email addresses!
    Email check failed, please try again
    Sorry, your blog cannot share posts by email.