We wanted to send you this special market update, which comes the day after another bloodbath on global equity markets, including in Australia, where the ASX 200 dropped almost 3%.
As yesterday made clear, there is no shortage of risk factors for investors to navigate right now, many of which we have warned clients of Australian Diamond Portfolio about recently.
These include negative interest rates around the world, crashing commodity prices, inversion of the yield curve, and continued fears over the US-China trade war.
All of those things have been in the news in the last 24 hours, with the pool of negative yielding debt (which we wrote about in this weeks “In the Loupe) now surging beyond USD $16 trillion, as the below Bloomberg chart shows.
Meanwhile, the odds of a recession in the United States, Europe and other parts of the world continue to rise, with the US yield curve inverting for the first time since 2007, which was right before the Global Financial Crisis kicked off.
You can see this on the chart below, which shows the United States yield curve all the way back to the beginning of the 1990s. Notice how each time the white line approaches zero (the white line is the yield curve), there is a red column there.
Those red columns all signify the start of recession in the United States.
We for one think it would be foolish to think this time will be any different.
On the US-China trade war front we’ve still got President Trump threatening to implement more tariffs onto China. It might be politically popular, but it helps cause inflation, with the latest data from the United States suggesting core inflation could be accelerating toward 4% per annum, with the last two months seeing the highest rate of inflation since 2006.
Given this backdrop, it’s no wonder that industrial commodities like iron ore are crashing, down almost 25% in a month, which is one of the reasons the Australian dollar has crashed over the last month or so.
It’s also no surprise that share markets are beginning to see significant declines, with the following ASX chart highlighting the sharp fall over the last few days.
Given many markets are still near all-time highs, it would be a brave investor to think there is no risk of more permanent damage, which will negatively impact superannuation funds at the very least, given how heavily invested in the stock market they are.
Turn to Something you can Trust!
Despite the carnage we are seeing in some markets, and the very clear warning signs that the economy is about to get a lot worse, there is no need to panic. Indeed, we see it as an opportunity, as it’s in the most difficult environments that many savvy investors make their real wealth.
After all, as we often say to clients at Australian Diamond Portfolio, whilst we can’t control the economic or financial market environment we are in, we can control our investment decisions, and use these periods of volatility to our advantage.
In times like this, safety, stability and tangibility should be primary goals with your portfolio. objectives. Rare coloured diamonds offer those qualities in this environment, with the GFC a decade ago a great example of how they can protect and grow investors wealth even in the most difficult of market environments.
They also offer the potential for meaningful profits, given their unique supply and demand profile, something that is particularly relevant for Australian investors given the downside risks to our currency that will be exacerbated if we go through a global recession.
Sadly, the problems in the global economy that were first exposed a decade ago have not truly been fixed, which is why the market volatility we have seen over the past few days is unlikely to subside anytime soon.
It’s time for all investors to pay attention.