The (risks to the) US Economy

[Steveam]

An interesting article from the BBC

https://www.bbc.co.uk/news/articles/cd131v26dneo

I suspect the Sino/Russia axis will be keen to destabilise the $. I’m not sure what one can do to protect oneself although gold jumps to mind and I’m minded to increase my exposure. (I just don’t understand enough about Bitcoin to know whether it might offer an alternative safe haven).

Best wishes,

Steve

[MuddyBoots]

An interesting article from the BBC

https://www.bbc.co.uk/news/articles/cd131v26dneo

I suspect the Sino/Russia axis will be keen to destabilise the $. I’m not sure what one can do to protect oneself although gold jumps to mind and I’m minded to increase my exposure. (I just don’t understand enough about Bitcoin to know whether it might offer an alternative safe haven).

Best wishes, Steve

Thanks Steve. I'm starting to think of an emergency plan if there's a major geo-political event causing markets to tumble. Like a panic room for my investments, which have a lot of US exposure through global index trackers, so they can ride out turbulence such as we had recently with covid.

With a fund manager, buying & selling a unit trust fund isn't very quick, it can take a day or two for transactions to go through but it is what it is.
In terms of asset types, I guess gold is an option, though as an amateur investor I don't know the best vehicle for tracking gold. Crypto still seems very 'wild west' to me and I don't think I would sleep at night putting a big lump of savings into that.

Other thoughts include gilts/bonds and of course cash. Perhaps a spread of 2 or 3 types to play it safe. But I'd value other folk's thoughts on this subject though. Is it a good idea to switch out of shares if there's a swing in the big economies, or to hold on and wait for the upswing?

[1nvest]

An interesting article from the BBC

https://www.bbc.co.uk/news/articles/cd131v26dneo

I suspect the Sino/Russia axis will be keen to destabilise the $. I’m not sure what one can do to protect oneself although gold jumps to mind and I’m minded to increase my exposure. (I just don’t understand enough about Bitcoin to know whether it might offer an alternative safe haven).

Best wishes,

Steve

If stocks were unavailable I'd probably be thirds each home, rented property(s)/commercial rentals, gold. With stocks available and I prefer those to renting (no 3am callouts on Christmas morning when a water pipe bursts). Given a UK £ home and gold, a reasonable choice is US$ invested in US stocks, three currencies, three assets, three sources of income (imputed, dividends, SWR) and where two-thirds remains in-hand (no counter-party risk). You can't easily rebalance house value, however I see house + imputed rent to be similar to stock + dividends, somewhat interchangeable.

If US stocks dive a case of selling some ounces of gold to buy more, equally it swings the other way around and you periodically sell some stock shares to add more ounces of gold. The total loss of any one of the three, a 33% hit, isn't that uncommon to the equivalent via normal market prices volatility (bad year). Concentration risk is a major risk factor that's easily diluted. If the US markets fail then pretty much so also does global capitalism, in which case you're back to two properties + gold, or a home + own business + gold type typical diversification (excepting where the state owns all).

[vand]

Investing based on geopolitics is a hiding to nothing imo. Even if you can understand all the politics you still have no idea how markets will then respond under any particular scenario.

That's not to say that you shouldn't own some gold, or anything else that you want, but there should be ample backtested evidence that a permanent allocation helps your portfolio in either improving return and/or reducing risk.

The next crisis, almost by definition is something that no one is considering right now, and therefore something that hasn't been priced into markets

[1nvest]

Geopolitical risk diversification is a risk-reduction measure, concentration risk is a major risk factor.

There is evidence that including gold in a portfolio has tended to improve Sharpe Ratio. For the same reward been less volatile - which also means less deep worst cases, supported a higher SWR.

[Steveam]

From a long article in today’s FT: (What went wrong with capitalism)

In the US, government spending has risen eight-fold since 1930 from under 4 per cent to 24 per cent of GDP — and 36 per cent including state and local spending. What changed under Reagan was that as spending rose, tax collections remained steady, so government started paying for its own expansion by borrowing. Deficits went from rare to routine and as a result public debt has quadrupled in the US to more than 120 per cent of GDP today.

…

Immobility is stifling the American dream. Other than the British, Americans are the people least likely to earn much more than their parents. Amid the record pandemic bailouts, the leading US tycoons saw their fortunes grow by tens of billions within 12 months.

…

To date, capitalism has arguably gone more wrong in Europe, where the state has been quicker to rescue and regulate, and growth in productivity and average incomes has slowed more than in the US. Now, however, the two sides of the Atlantic may be swapping places. Under Biden, the US has become an extreme outlier, with deficits and debt on track to set records, and to grow much faster than those of its peers.

Best wishes, Steve