The market fell the other day on news that an early trade war deal is not likely. But, the trade war is only one symptom of problems with the world economy. This got us to thinking, what are safe investments in an uncertain world? In that regard, it is instructive to look at how major changes in the economy, technology, and other factors affect your investments over the long term.
Investing in Carriages When They Are Making Cars
Since we are thinking of long term issues with your investments, we thought that a little history lesson would be useful. At the beginning of the 20th century there were both horses and cars on the road. But, anyone who invested heavily in making carriages instead of “horseless” carriages lost their money. We believe that investors looking to the future need to consider which of today’s investments will be tomorrow’s carriages and which will be the cars. In this regard, a recent article published by Bloomberg is instructive.
Investing in a World with Big Problems Coming
Bloomberg writes that the world might have a Bigger Problem Than a Potential Recession. Their argument is that governments, markets, and investors across the globe are being shortsighted. They are focusing on next quarter’s or next year’s profits when there are factors in the works that could change the economy and investing forever. They discuss a recent OECD report.
The latest outlook and policy prescriptions from the Paris-based group mark a step beyond its repeated warnings about threats to growth from U.S.-China tensions, weak investment and trade flows. Those remain, but it also flags more systemic challenges from climate change, technology and the fact that the trade war is just part of a bigger shift in the global order.
For OECD Chief Economist Laurence Boone, the worry is that the world could continue to suffer in the decades to come if authorities offer short-term fiscal and monetary fixes as the only response.
They say that global growth will decline. But, the decline will be worse in some countries than others.
There are many issues that require basic, structural, changes and governments are focusing on short term stimulus measures such as the Trump tax cut. These measures generally make things worse in the long run and benefit only a few in the short term. We noted the fact that much of the tax cut benefit has gone into stock buybacks which have propped up stock prices but not helped anything over the long term.
Investing a World of Climate Change Chaos
The article touches on historic fires in Western Australia and Venice amid a heat wave in Europe that reached into the Arctic. They note that many of the effects of a warming world cannot be forecast but that we seem to be getting a taste of them already. The economic costs of fires California, Australia, and the normally-humid jungle of Colombia may be substantial. All of the resources that go into fighting fires, fixing flood damage, and dealing with other “natural” disasters takes away from funds needed for infrastructure and other necessary functions of government. Our concern is that Trump’s trade war is only the first retrenchment that will be seen across the globe.
Asia is signing a trade pact that was originally supported by the USA. In all likelihood, this pact will help Asian economies to the detriment of the countries in the West who have excluded themselves (USA).
Safe Investments in an Uncertain World
If you buy the argument that changes are in store and they will hurt your investments, what do you do? Our first thought is that trade will shrink as countries adopt protective measures. That means you need to look locally for companies that are not dependent on foreign sales. These are the same sorts of investments that would be appropriate for a permanent trade war. In addition, if market become more volatile, the sorts of investments we mention in our article about investing without losing any money would be appropriate. No matter how all of this works out, the best stocks to invest in will change as conditions warrant.