We are OK!
Well, from an economic perspective, we believe this to be the case for another three years or so. Let me explain.
2016 for many was a troubled year. It could be awkward to park the emotion of events such as Brexit and walk on by to talk about financial planning and investments in a positive future light. The recent global events, such as the election of Donald Trump as the next President of the United States are interwoven. However we must look outside the media, which in many cases have been active in spreading fear, bordering on intimidation, about the future. Sure, it's going to be a very different world, and from a business perspective, this could be positive. Why do I say this?
We question whether, for a period of 2-3 years (currently as long as we can reasonably forecast) there will be a switch to global growth from the east to the west, namely America. Donald Trump is above all a wealthy business person, as are most of his cabinet. Leaving aside whether this is right or wrong from an ethical perspective (we are not here to judge), he and his team are likely to drive the US economy. He has, with his party, control of the White House, the Senate, and the House of Representatives for a minimum of approximately two years (the next interim election is in November 2018 / House of Representatives) before anyone can really slow his significant planned fiscal policy changes. Certainly there will be those who will aim to frustrate him, but they do it from a position of weakness, rather than power.
Some pundits have suggested that there will be a global switch from monetary policy to fiscal policy. A definition of each is as follows:
Monetary policy is the process by which the monetary authority of a country, like the central bank or currency board, controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.
Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money supply.
So this is potentially a switch away from (as examples) the US Federal Reserve (sometimes known as the FED) or the Bank of England controlling monetary output to national governments taking control. Trump's infrastructure projects will contribute to this switch, as an example, as will the planned Heathrow expansion (if it ever gets off the ground… excuse the pun).
Turning closer to home, the negotiations on Brexit, planned to begin in the spring of 2017, will take two years to settle. Rhetoric abounds, but because of the various elections in Europe over 2017, we think both sides will ask for extra time to finalise.
In recent years we have remained keen on investment / pension allocations to the UK, America, sterling and dollars, with a lower positive view / allocations towards Europe. We have not changed this view moving into 2017, although of course we review this position and our advice to clients regularly.
Looking forward, in our view, 2020-2021 looks interesting and potentially a time of (or the lead into a time of) further change again, although probably not before then. Indeed, with this in mind, we think that from a growth perspective the next few years look good, if not strong. This is not guaranteed and is only an opinion, and probably not one that will be shared by the press anytime soon.
All we suggest is that when the news correspondent on your TV suggests that the value of your home, shares, pension and the like are all doomed, read between the lines, and switch channel! As a suggestion, we keep an eye on Reuters for balanced information, data and reporting and it's worth a look next time you have the opportunity. A link can be found here: http://uk.reuters.com/ .
Chapters Investment Committee
It is important that all directors and advisory team members are briefed and updated on the current economic climate, its data and our corresponding 'house view'. We aim to meet once a quarter and to ensure our process remains robust, we also use the services of an external consultant, Mr Steve Williams of Cormorant Capital Strategies. For information, their website can be found here: http://www.cormorantcapitalstrategies.co.uk/
Steve Williams produces a regular Macro Economic Review document and, with his kind permission, this is reproduced here. We aim to update this once a month. We find this update helpful in considering the current economic conditions.
No individual advice is provided during the course of this article and please remember that we can be wrong, like many others are and will be. However, have a look at some of the stats and timings that are freely available and, as we have, bring these together. The story outcome is potentially positive; it's just the way you read it!
This was written at the beginning of January 2017 (updated again in March 2017).
Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.