Thought for the day

by David Taylor

 

I was looking back over many of my posts and realise some of them may seem a little negative. There is a reason for that though - the world economy is still not out of the woods yet. But it's not all doom and gloom.

 

When studying economics, one of the first concepts you need to get your head around is that of cycles. Just like the ocean, economic activity comes in waves, you could argue it's all very natural. What us humans struggle with is when the depth and breadth of those cycles becomes overwhelming - or to extend the ocean metaphor - we get 'dumped'.

 

But with every lull you make way for a period of prosperity. You just hope that you end up somewhat better at the end of the cycle than you were at the start. The difficulty comes when we go through a long and protracted period of economic struggle - like we're experiencing now - that we begin to doubt we're heading to a better place.

 

The reality is that the worst may not be over. It's a bitter pill to swallow but it is possible. Inflation may be the killer on that front. With so much liquidity flooding developed economies, it's possible that attempts to contain inflation my derail the economic recovery of many developed economies around the world (including Australia).

 

The upside is that whether or not the worst is still to come, just like every other cycle, at some point we will emerge from it and return to more prosperous and sustainable levels of economic growth. No doubt the world may look significantly different at that point. Even if it does, that will be appropriate.

 

In the meantime it is important to stay on your toes and expect the unexpected. It takes a brave investor to take on heaps and heaps of risk at the moment. We know this because we've seen markets correct overnight in recent months - a correction in the precious metals market being the most recent example.

 

If it were all easy to figure out, it wouldn't rate a mention. Fact is this is challenging stuff. You can feel confident you're not alone in your concerns. You can also be proud you're willing to give it ago and grapple with some of this stuff.

 

David Taylor

Disclaimer

The content in my blog is non advisory, please do not interpret this as advice in any way shape or form. These are just my thoughts and nothing I say should be acted upon.