Following the day-to-day news on Iran is frustrating. There appears to be scant progress on the vaguely defined war aims or a pathway to lasting peace. According to the Wall Street Journal this frustration is ironically shared by President Trump who seems unable to accept that he can't just bend the Iranians to his will.
What is becoming clearer is the economic fallout. The IMF projected global economic growth would fall by 1.30% to 2.00%. The lower projected growth rate is perched on the cusp of the IMF’s definition of a global recession.
Global inflation is spiking with Australia expected to follow suit when quarterly CPI is released next week. Will IMF warnings about the inflationary impact of government spending lead to a restrained fiscal response to the economic slowdown? We will find out in mid-May.
Ashley Owen shows our unique and unenviable position in Australia where the RBA faces higher levels of inflation than other nations. There doesn't appear to be a magic bullet to bring inflation back under control.
The April Bank of America global fund manager survey shows investors forecast oil at $84 a barrel by the end of 2026. That is significantly higher than the $55 a barrel prior to tensions in the Middle-East. The impact of higher oil prices are beginning to spread throughout the economy creating credit concerns.
National Australia Bank has lifted loan impairment provisions by $300 million to cover potential stress from sectors directly affected by the Middle East conflict, and broader downside to the Australian economy.
One place credit concerns may manifest is within the private credit space. In the US concerns about lending to software companies upended by AI have led to increases in redemption requests - many of which aren't being honoured. The impact of AI extends beyond smaller software companies and GQG outlines why even Alphabet is seeing challenges to their business model.
In Australia much of the private credit lending is to property developers who are being impacted by higher construction costs. This week Phil Stano looks at concerns Australian private credit will go down the same pathway as the US.
What makes the current situation troubling is the seeming disconnect between markets and what is going on in the world from a geo-political and economic standpoint.
Markets are always forward looking but it seems hard to foresee the optimistic scenarios that have shares at record highs.
How to respond to economic turmoil
In Groundhog Day the character played by Bill Murray finds himself having to relive the same day again and again. This is a metaphor for a boring life where repetitive routines take over.
Routines might be boring, but they are also the secret to building wealth. If you want to create a secure future get into a routine of saving money to invest following a consistent strategy.
As a reader of Firstlinks it is likely that investing is part of your routine. Routines offer a perception of control in a world where so much seems uncertain.
Like many readers, my own pathway to assert control was always through my finances. When I was younger, I pictured a time when I amassed enough wealth to provide security. This was my way of trying to counteract all the uncertainty I felt about the future.
For me, wealth was never about showing off or nice things – it was about independence. I saved and I invested consistently because it felt like it was another step towards self-determination.
When I felt a vague sense of uneasiness about my life or the future, I thought about how much I would save out of my next paycheck. I calmed myself by projecting the value of my portfolio using assumed savings rates and returns.
I suspect a lot of other people reading this article do the same thing – even if it is done unconsciously. We encourage young people by saying they can be anything they want in life. Yet the experience gained by aging often reveals how happenstance plays a large role in our outcomes. Being intelligent, making good decisions and working hard is a good start…but isn’t always enough.
Will Trump’s next move in the Middle East plunge the world into recession? Will the next iteration of an AI model replace your job? Will the next superannuation tax or regulatory change alter your retirement outcome?
All of these potential outcomes could be solved by having more money. The problem is that no amount of money will make you feel completely safe. Money is measurable which makes it all to easy too obsess over. That is a formula for always feeling like you need more.
Final thoughts
Forgive this brief deviation from the normal topics I cover. Perhaps it is turning another year older this week. Perhaps it is frustration and a general unease with the state of the world. Maybe I just needed a break from digging through financial studies and investment data.
My reflections this week might just be a result of reading Andrew Ross Sorkin’s 1929 where the collapse of the financial system showed the fragility of our expectations that the future will resemble the past.
Investing and life are about accepting uncertainty. It is about self-awareness and the balance between financial goals and what makes your life fulfilling.
Maybe your coping mechanism is to save more, plan more or focus on optimising each dollar you have. And maybe you need a break.
Sometimes life is about opening that nice bottle of wine you are saving for a special occasion. Or going out to dinner with someone you care about and haven’t caught up with in a while.
Sticking your head in the sand is rarely the right choice but unplugging for a bit never hurt anyone – just wait until after you’ve read this edition of Firstlinks.
Mark LaMonica
Also in this week's edition...
Nick Callil and David Knox introduce a proposal to address Australia's 'stranded balances' in retirement by requiring super funds to transition members to pension phase at 65, boosting retirement income and reframing super as a source of income.
Tony Dillon's take on energy security. Is it time for Australia to double down on renewables?
Billions continue to be spent on the AI build-out. Jeffrey Tobias asks if there is any proof it is working.
Cromwell takes a look at replacement cost as a practical lens on relative value in commercial property. Is now an attractive time for the asset class?
This week's white paper is Fidelity's latest Analyst survey which focuses on the key questions investment decision makers are asking, helping investors understand how themes could play out across portfolios.
Curated by Mark LaMonica and Leisa Bell
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