Seven lessons from the Global Financial Crisis for investors

The key lessons for investors from the Global Financial Crisis (GFC) are that: there is always a cycle; while each cycle is different, markets are pushed to extremes of valuation and sentiment; high returns come with higher risk; be sceptical of financial engineering or hard-to-understand products; avoid too much gearing or gearing of the wrong sort; the importance of proper diversification; and the importance of asset allocation.

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The US Economy – Does The Flattening Yield Curve Indicate Recession Is Imminent?

Ever since the Global Financial Crisis (GFC) there has been an obsession with looking for the next recession. In this regard, over the last year or so there has been increasing concern that a flattening yield curve in the US – ie the gap between long-term bond yields and short-term borrowing rates has been declining – is signalling a downturn and, if it goes negative, a recession in the US.

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2017-18 Saw Strong Returns For Diversified Investors

The past financial year saw solid returns for investors but it was a story of two halves. While the December half year was strong as global share markets moved to factor in stronger global growth and profits helped by US tax cuts, the last six months have been messier and more constrained – with US inflation and interest rate worries, trade war fears, uncertainty around Italy, renewed China and emerging market worries and falling home prices in Australia.

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Correction Time For Shares?

2017 was unusual for US shares. While Japanese, European and Australian shares had decent corrections throughout the year of around 5 to 7%, the US share market as measured by the S&P 500 saw only very mild pullbacks of less than 3%. This was against the backdrop of a strongly rising trend thanks to very positive economic conditions and President Trump’s business friendly policies.

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Why Cautious Optimism Is Better For Your Investment Health Than Perma Pessimism

At the start of last year, with global and Australian shares down around 20% from their April/May 2015 highs, the big worry was that the global economy was going back into recession and that there will be another Global Financial Crisis (GFC). Now, with share markets having had a strong run higher, it seems to have been replaced by worries that a crash is around the corner and this will give us the global recession and new GFC that we missed last year!

Australians seem particularly vulnerable to worries these days. On the weekend I read that Australians are suffering from an “epidemic of anxiety” and that out of a survey of 24 nations Australians ranked in the upper half in terms of worries about a health epidemic (9th highest), a terrorist attack (8th highest) and a nuclear attack (5th highest) – way above South Korea in terms of the latter despite Kim Jong-un’s new found nuclear capability just across the border! And a Roy Morgan survey has found that only 31% of surveyed Australians expect next year to be a better year than 2017, which is the lowest on record and only just above the 30% who expect next year to be worse. See the next chart.

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Bubbles, Busts, Investor Psychology..& Bitcoin

The surge in bitcoin has attracted much interest. Over the last five years, it has soared from $US12 to over $US8000; this year it’s up 760%. Its enthusiasts see it as the currency of the future and increasingly as a way to instant riches with rapid price gains only reinforcing this view. An alternative view is that it is just another in a long string of bubbles in investment markets.

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