Macroscope | A recession is looming, easy money is ending and the yuan is falling – get set for 2019, the year of living dangerously

David Brown says that with indicators turning negative and austerity the norm, investors may be well-advised to liquidate and remember that cash is king

Reading Time:3 minutes

Traders work on the floor of the New York Stock Exchange on December 7. Photo: Bloomberg

Published: 2:15pm, 17 Dec 2018Updated: 10:35pm, 17 Dec 2018

We are fast approaching that critical time of the year when investors must place their bets for 2019. It will be no easy task as investors face a battery of negative forces, adverse headwinds and a sense that the world is sinking into complete confusion. As if investors have not already been through enough hell and high water in the past decade, there is a prevailing sense that things are about to go pear-shaped again.

As markets become more focused on capital protection and risk aversion, investors will need to find better refuge. Next year will be a very tough one to stick your neck out for risk.

The seeds have already been sown for the next recession and the world seems oblivious. Stocks are priced way too high, risk and volatility are understated and safe haven trades are still mainly parked in neutral. World trade troubles, the threat of a US government shutdown, Brexit risks, euro uncertainties, the end of policy super-stimulus and emerging market debt worries – the list becomes endless. It is all helping a deeper gloom take root.

Over the past decade, central banks have fuelled a heady boom in share values and property prices by slashing interest rates and pumping up the global economy with virtually free money under the banner of quantitative easing. Now the party is over and investors have to face the music of much less certain times and greater financial attrition.

There is still a vestige of thinking that things will be all right on the night with investors holding on for now. Asset allocation polls show no sense of endemic panic yet, but it is simply putting off the obvious. Economic confidence is slipping towards negative territory, world trade is slowing to a crawl and global policy is heading in the wrong direction.

Increased austerity and the shift to higher interest rates and yields are still the dominant trends and there is no global forum to encourage an alternative route. Global policy harmonisation is dead in the water thanks to Donald Trump’s past actions.

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.css-1m2rp1p{color:#34b8b5;}Macroscope | A recession is looming, easy money is ending and the yuan is falling – get set for 2019, the year of living dangerously

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;}David Brown says that with indicators turning negative and austerity the norm, investors may be well-advised to liquidate and remember that cash is king

Macroscope | A recession is looming, easy money is ending and the yuan is falling – get set for 2019, the year of living dangerously

David Brown says that with indicators turning negative and austerity the norm, investors may be well-advised to liquidate and remember that cash is king