How We Look At Global Events When Constructing and Rebalancing Portfolios
Everyday, people hear something in the news that might be upsetting or may create opportunity in the investment world. Knowing the difference between news or events that shapes days, weeks, months or even years with regards to the markets trend is important.
From the mid 90s until the year 2000 the adoption of the Internet worldwide made a tremendous difference in regards to how people did things and the markets stratospheric rise. The.com bomb which occurred in the year 2000 also made a tremendous effect on devolving markets.
From approximately 1995 through the end of 2007 real estate in the United States was fueled by little known and little understood collateralized mortgage obligations (CMO’s) and collateralized debt obligations (CDO’s). These little understood but amazingly destructive derivative investments which were sold by some of the largest investment banking companies to unsuspecting individual and institutional buyers throughout the world. When they failed, the destruction became the Great Financial Crisis of 2008 through 2009. During that time stocks lost 50 to 70% or more of their value, real estate lost 50 percent or more of its value and sometimes became worthless, and bonds lost 20 to 100% of their value. Some of the largest investment banks in the world, Bear Stearns and Lehman Brothers, failed. Havoc on the overall financial market which through the world into one of the worst recessions in almost 100 years. Cash was King!
Most recently the COVID virus and the ensuing overstimulation of the economy by the US Federal Reserve as well as by many measures the implementation of the American Rescue Plan caused excess inflation which the Federal Reserve responded to by driving interest rates up at an incredible rate. This made stock and bond markets throughout the world plummet. However, up to this point, a deep recession has been avoided.
Along the way many shocks have hit the financial system which have created bumps but not all out failure. Having an approximate knowledge of what will and what won't completely rock the system and create appreciation or depreciation of financial instruments crucial.
Currently, A I, and the potential of artificial intelligence with regards to business, markets, government and overall, the life of every person in the world holds dramatic opportunity. Along with it is potential peril. Understanding the potential, and reducing or eliminating the peril, and investing in those companies which create the most opportunity for the clients we serve may prove to be the most exciting investments for the foreseeable future.
For more than 40 years, China has been developing into an economic powerhouse. As it stands, it is the secong largest economy on the Earth. That being said, Covid-19, China's response and it's Communist nature have had a negative affect on its economy. For the first time in many years, China's economy is at a standstill or even declining. The affect on the world is not fully known and it's long term affect again may provide opportunity or peril. Engaging in the investment opportunitites that are created may create substantial long term value.
Combining global analysis as well as fundamental and technical analysis to create a more precise prediction of where investments will go takes experience and skill. Global analysis along with the others forms of analysis mentioned here are key parts of AtlanticMidwest Investment Research analysis when making investment decisions for our clients, helping you to sleep better and night and enjoy the Retirement you deserve.