The seduction of pessimism...

There are a lot of things to worry about right now. High energy costs, higher mortgage rates, war in Europe, a far-right leader in Italy, stock markets down etc. News feeds on TV, online and on social media channels are awash with doom and gloom.

This negative and worry-fuelled sentiment feeds into our human psyche, which was honed thousands of years ago - where heading out to forage for food could see you mauled by a tiger or eating the wrong berry could see you poisoned. The brain is wired to pay more attention to dangers.

Now is not the time for me to say everything is rosy and everything will be great. However, it is time for me to bring a little dose of positive sentiment.

In terms of energy costs, I don’t know when or how the costs might come down.

I do wonder if this is this a wakeup call for developed nations to move away from one main exporter. Is this an opportunity for every country to harness cleaner energy sources like solar and wind. Is geo-thermal energy production a real possibility? Should we go back to nuclear power?

Higher mortgage rates are going to have a major impact on people’s finances and the housing market in the next few years. I think people have overextended themselves and lived above their means over the past 10 years. Cheap money has allowed this to happen and people who have become habituated to this cheap money are going to have an issue. Whilst I know this is going to bring pain, I again see an opportunity for housing prices to become somewhat normal. Wage rises due to inflation might meet falling property prices which could be helpful to those trying to get onto the ladder.

The UK has seen this before and survived. Whilst this time is new for many young people, we have seen higher inflation and higher rates before.

In terms of the stock markets around the world, the UK accounts for about 5% in a globally diversified portfolio. So whilst it takes up lots of time in our conversations at dinner parties and around the water cooler, the UK’s stock market is not a massive part of the overall market. If you’re investing monthly into markets, now is a good time to buy stocks. They’re on sale and who knows if they’ll be this cheap again.

That may seem like a prediction, but I try to stay away from predictions where possible.

As recently as 2020 the Federal Reserve made the prediction that US unemployment would get down to 4m jobs available by 2023 and that the fed funds rate would be raised by 0.6% in the same period.

Job openings had already reached 4m by mid 2021, and they raised the funds rate by over 3% in 2022. The point I’m making here is the Federal Reserve in the US, full of top-level economists and PHDs, was miles off its own forecasts and interest rate estimate and it sets the rate itself!!!! Forecasting is a fool’s errand and believing the forecasts on TV or in the papers/online even more so.

I don’t know how the current issues in the UK are going to pan out. No one does. I do know that over the long term, people across the world are better off economically, have more access to clean water, working Wi-Fi and electricity, are better educated than at any time in human history and I don’t see that going backwards. Check out Hans Roslings' book 'Factfulness' for more optimism.

To invest you have to faith in the future. It’s really hard right now. It’s always darkest before the dawn.