Since the inauguration of the new US president, we have seen actions, rhetoric and changes in the global balance of power that have exceeded many expectations. This is challenging previously taken-for-granted things such as stability, alliances and global trade. A natural consequence of this is increased uncertainty and fear in the market.
A less pleasant effect of this uncertainty is how it is amplified by media coverage and political debates. An example of this was seen in NRK Debatten last night, where the topic was whether we could face a new financial crisis.
Increased uncertainty – but how big is the risk?
The debate was sparked by the president's statements about possible doubts about the repayment of the US national debt. The discussion revolved around a "worst-case scenario" and what consequences it could have.
This is of course an interesting exercise, both academically and intellectually, but if the probability of such a crisis scenario occurring is vanishingly small, it may create unnecessary fear.
The experts on the panel pointed out that the risk is not zero, but no one would say how small the probability actually is – except that it is low. What was the point, then? The host emphasized that the point of the debate was that such statements can have consequences for most people, not just Americans or economists. That is an important observation, but what can we actually do about it?
What does this mean for you as an investor?
Let's be clear: The likelihood of this unfolding as outlined in the debate is extremely small. The main reason is that such a development would be catastrophic for the United States itself, which would put massive pressure on American policymakers to avoid such a situation.
What can we as investors take away from this?
Don't get carried away by scary media reports or political rhetoric. Most worries never become reality.
Diversification and risk management are the keys to long-term success. At NOON Invest, we focus on balancing return and risk, so that your portfolio can withstand both expected and unexpected events.
Our conclusion: Keep a cool head.
We never rule out risk, but we also see no reason for undue concern. History shows that the market adapts to uncertainty and continues to grow over time. With the right strategy, there is still good opportunity for further growth.
Looking at the fundamental factors, there are several positive driving forces:
Interest rates are relatively low in a historical perspective
Business is doing well
Household debt is moderate (globally)
Both China and the United States – the world's two largest economies – want to stimulate growth
Do you have any questions or would like to chat about investments? Contact us at NOON Invest!
Phone: 406 95 100