When the central banks run out of tools, it’s time to diversify your portfolio

When the central banks run out of tools, it’s time to diversify your portfolio

28 March 2019 from Anna Svahn
When the FED, after its latest FOMC meeting, met the market with punchy messages such as pausing future interest rate hikes as a result of the slowed down economy and that the Fed will end the normalization of the balance sheet in September this year. It was during the former FED chief Janet Yellens time that the reduction of the balance sheet began.

By now, we have become accustomed to pigeon-like central bank statements being faced with rising asset prices, but now it seems that the market has also come to a limit for how many air castles can actually praise the stock prices and the stock exchanges fell sharply on Friday. However, for those who realized the value of diversifying the portfolio, both in different currencies and with gold as a complement, there was comfort in that the gold rose on the expected news that the Fed is pausing future interest rate increases.

However, it is not just a slowdown in the global economy that worries. The conflict between China and the US continues and after several promises that they were close to a solution, the market continued to rise without real proof that this was the case. In addition, Brexit is still hanging in the air and we do not know how the exit will end, or if it does not. Add to that the weak job figures where only 20,000 jobs were created in the US in February against the 180,000 that you counted on, it starts to look like we may have reached or are heading down from the peak of the business cycle. Although the FED has said that they will pause future interest rate hikes, the interest rate in itself is still too low for a potential reduction to be able to function as a good lubricant.

So there are a lot of challenges going forward but the fewer tools for how to handle a possible recession. Powell recently went out and told us that the FED has in the past year worked to develop revolutionary tools in order to stimulate the economy in a recession with already low interest rates, but told that the toolbox unfortunately still echoed even and that the ambition to revolutionize today's monetary policy had slowed down a bit and that they now instead looked at evolving the tools that already exist today.

We therefore face what could be the greatest challenge of our time when it comes to the global economy - and we have no monetary policy tools left to take it through.

As an investor, we must therefore realize that trust in the central banks is exhausted and instead of increasing the risk in our investments find ways to diversify into different markets and asset classes.

Gold is and has always been a kind of safe haven for investors to search for during more uncertain times, so even now. Another option is to consider how you can optimize your exposure to different currencies depending on what you believe about the future in each currency.

So there are many ways to protect themselves from weak currencies, but maybe the better way for anyone who lacks all confidence in central banks and fiat currencies is as always gold.

@Mikael Syding

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07/12/2022 10:05:33


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