BFI Infinity InSights: Deeper Into the New Era: The Importance of International Planning
In the fall of 2020, we published our special report “On the brink of a New Era–are you prepared?” and in it, we gave our readers an idea of what the next couple of years might bring. Many of the projections in the report have become reality, especially the reemergence of inflation that has become a global issue. Unfortunately, the growing global tension in an increasingly multi-polar world order is also a reality today and with the Ukraine war we have reached a new level of escalation. We also made the case in our report that investing in the future will be more demanding; a simple buy and hold strategy will not be enough anymore. We are only a few weeks away from releasing our follow up report, “Deeper into the New Era”. We encourage you to carefully review and study it, as it contains a lot of critical information and insights that could prove invaluable for investors.
Since our ,February investment update, a lot has happened and we saw many new developments that had a practical impact. Our regular readers might remember that back in the fall of 2022, we were projecting a peak of the interest rate cycle in the spring of 2023 and a slow easing of inflationary pressures, which should also be supportive for equity markets and allow them to find a firm bottom and start recovering. So far this has been the case and we have indeed been seeing a recovery in global equity markets from the lows of Q3/Q4 2022.
In the short term, there could be renewed strong pressure on share prices, for example from pressure on earnings or a renewed banking crisis, but we continue to believe that the markets have significant recovery potential afterwards and we are preparing accordingly.
While inflation continues to slow down, we don’t expect it to fall back to the ultra-low levels we had until two years ago. However, just the fact that it is receding might already be enough to support financial markets. With the potential peak in inflation behind us for now, we are expecting central banks to adjust their strategies based on underlying economic fundamentals and these fundamentals don’t look very good. Growth has been slowing in most major economies and despite the fact that we are not yet seeing a recession, the outlook remains very fragile with a lot of companies probably seeing headwinds developing for corporate earnings. The most recent earnings season might have included positive surprises, but a lot of companies have also benefitted from “catch-up” activity, from their supply chain pains easing somewhat and allowing them to finally deliver products faster again.
This is the good news. The bad news is that many companies are seeing a slowing pipeline and new order intake and that will have a negative impact on corporate earnings going forward. It is hard to say if this can lead to another downturn in the market in coming weeks, but we recommend focusing on opportunities with a 2-3 year time horizon because the outlook there is a more positive one in our view.
One of the most popular Bruce Springsteen songs, “Dancing in the Dark”, is kind of reminiscent of today’s investment environment and outlook. Visibility is quite low and therefore it is more important than ever before to have a sound long-term strategy with a clear focus and risk management needs to be a key priority. This is also a good time for investors to do a fundamental review of how they are positioned and what needs to change now in order to optimize investment results in coming years. Our upcoming special report will include a lot of useful information and explain the big developments and trends we expect in the coming years.
Making sound investments has always been based on anticipating how the world might evolve. While it is very difficult, if not impossible, to make accurate long-term predictions, we believe that many of the key trends and themes that can already be identified today, can be used to make smart investment decisions.
Since the release of our last investment update, the most critical events were certainly those in connection with a growing number of banks that have gotten into problems. Our readers might recall that we have been expecting problems like these in the banking sector for quite some time now, but we were somewhat surprised to see how quickly this all unfolded. The demise of banks like Silicon Valley Bank and First Republic Bank clearly showed that there is a lot of risk on bank balance sheets, American ones in particular. Our biggest concern at this point is the huge exposure banks have to commercial real estate, a sector that is currently going through a very difficult time, and we expect even more pressures in the months and years ahead, a topic we’ll examine in the second part of this report. The pandemic has been a real game changer in this context, with many more people now working remotely or partly remotely and this change is here to stay. That also means that over time companies will make adjustments to their leases and the bottom line is that much more space will become available, which will put prices under a lot of pressure.
Overall, we are anticipating a continued slowdown in the world economy that will probably persist for the next 2-3 quarters. Whether or not this will translate into a recession in the U.S. and Europe is not yet clear, but what is clear is that growth will be anemic and slow. This, however, does not automatically mean lower equity markets: in fact, very often, a sustainable recovery in stock markets starts when growth is slow, or even negative, and before interest rates are cut. This is a very realistic scenario for the second half of this year or the first half of next year.
So, while there are a lot of uncertainties in the short-term, we think investors would do well to remain almost fully invested, but at the same time they should have solid downside protection in place, which is pretty much standard for our clients’ portfolios. We also recommend higher allocations to real assets such as precious metals and commodities.
The most important advice that we can give to investors at this point is to set their priorities right. That means, first and foremost, having a very safe and secure place for the custody of your assets, which brings us to the Swiss private banking model. “How to own”, rather than “what to own”, has really become one of the most critical questions in wealth management and the recent banking crisis in the U.S. shows that investors simply can’t assume anymore that banks are safe. The Swiss private banking model offers very significant advantages, because private banks tend to be much more conservative and also keep a lot more capital on their balance sheets. Once you have a solid situation in place, the long-term journey for the best investments can begin. There are great benefits and opportunities to be found in international planning and investing, since it doesn’t just offer more investment options, but it also greatly enhances wealth protection too.
We would be happy to be your partner and ally for global investments, as we have been doing this for exactly three decades - 2023 was our 30-year anniversary. We are looking forward to hearing from you and please make sure to reach out and get a copy of our upcoming special report, “Deeper into the New Era”. We are sure that you’ll find it practically valuable as a guide to your investment journey.
This report was prepared and published by BFI Infinity Inc., a Swiss wealth management company registered under the U.S. Investment Advisors Act of 1940 with the U.S. Securities and Exchange Commission (SEC) as an investment advisor.
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All information and opinions indicated are subject to change without notice.