A fairy tale economy

Are the alarm bells ringing out for 2024?

Ian Rees, Co-Head Multi Manager Funds from Premier Miton’s Multi-Manager Funds investment team, questions whether a Goldilocks Economy is a fairy tale too good to be true.

For information purposes only. The views and opinions expressed here are those of the author at the time of writing and can change; they may not represent the views of Premier Miton and should not be taken as statements of fact, nor should they be relied upon for making investment decisions.

And then he sang a song

As we look forward to Christmas festivities and hearing again the UK’s most played Christmas song of the 21st century, the Pogue’s ‘Fairy Tale of New York’, investors might just wonder at the Fairy Tale gift delivered by Central Bankers this Christmas. I am of course referring to the surprising outcome of the US and UK economies continuing to prosper in the face of double-digit inflation and the fastest series of interest rate hikes seen in more than a generation.

At the end of 2022, the geopolitical backdrop of soured relations between China and the US, snarled supply chains as the global economy emerged from widespread lockdowns, together with an oil and energy price shock resulting from the invasion of Ukraine by Russia, resulted in an unwelcome inflationary backdrop. As a result, there was a general belief that this year would see a recession in the US and elsewhere as tough talk by central banks sent sentiment and expectations lower.

I can see a better time

Whilst we have endured a volatile year regarding inflation and inflation expectations, economic growth has so far remained remarkably resilient. With inflation continuing to decline, interest rates appear to have reached their peak (for now?), with GDP data continuing to look resilient (recently reported 3rd quarter US GDP rose by 5.2%). This is being hailed as a ‘Goldilocks Economy’ whereby economic activity has not ‘cooled’ to the degree of inducing a recession, nor are things ‘too hot’ that further rate rises are inevitable. Instead, the output of the economy is ‘just right’ for getting inflation under control without dipping into negative territory.

As a professional investor, I have been fortunate to have enjoyed some longevity in the market. As such, when I hear the phrase ‘Goldilocks Economy’, I am rapidly transported back to 2007. At this time, the global economy was operating in a much lauded ‘Goldilocks’ environment of ‘non-inflationary growth’. Despite the unrelenting construction boom in China leading to a surge in commodity prices and investor enthusiasm for the region, the deflationary force of a significant increase in the global workforce saw an increased supply of goods and services that helped keep inflationary forces in check.

Got on a lucky one

This was a great investment narrative at the time to get carried away with, although the payback in the years immediately following this prior ‘Goldilocks’ period, was anything but a Fairy Tale at the time. So, in reference to the fairy tale of Goldilocks and in remembering the events back then, there are some very useful lessons we can take from them.

Firstly, whilst Goldilocks was able to satisfy her hunger with a bowl of porridge that was ‘just right’, she was not present enough to recognise the dangers of her surroundings. Throwing caution to the wind, Goldilocks was able to feast on the porridge to the point where she needed to rest, relaxing until she fell asleep in a comfortable spot, despite being in a stranger’s house. As investors, we can seek to take advantage of the opportunities presented to us, but we ought to remain alert to the risks of the environment, especially when things are less obvious or certain.

The second lesson is that things will never persist in the state you found them. In the story, the bear’s house only remains empty until they return home. It is therefore best to prepare for change and not believe things will persist indefinitely. The same is true of both economies and markets, too much excess will inevitably lead to an uncomfortable level of restraint. Back in 2007 the panacea of guilt-free growth fuelled an economic and credit boom that eventually resolved itself by way of a bear-market for investors.

The final lesson is that by being fleet of foot, Goldilocks was able to get away – this is a fairy tale after all! In real life, bears are formidable creatures. With an average speed of 56km/hr and the ability to scale trees rapidly, the North American Brown Bear (or grizzly as they are commonly known) would typically make any escape a challenge. Flexibility, liquidity and the ability to act swiftly are all tools the experienced investor can employ to avoid the clutches of bears.

I’ve got a feeling, this year’s for me and you

So, coming back to the reality of today and the Goldilocks economy we face, we can indeed take advantage of the opportunities we see before us (relative and absolute value trades appear plentiful for those willing to look). However, we should be also cognisant of the valuation risk that is around, along with a volatile and uncertain environment that remains difficult to foresee. We should therefore maintain our consideration of risk management,

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Risks

The value of stock market investments will fluctuate, which will cause fund prices to fall as well as rise and investors may not get back the original amount invested.

Forecasts are not reliable indicators of future returns.

IMPORTANT INFORMATION:

For Investment Professionals only. No other persons should rely on the information contained within.

Whilst every effort has been made to ensure the accuracy of the information provided, we regret that we cannot accept responsibility for any omissions or errors.

Reference to any particular investment does not constitute a recommendation to buy or sell the investment.

Issued by Premier Portfolio Managers Limited, (registered in England no. 01235867), authorised and regulated by the Financial Conduct Authority, a member of the Premier Miton Investors marketing group and a subsidiary of Premier Miton Group plc (registered in England no. 06306664). Registered office: Eastgate Court, High Street, Guildford, Surrey GU1 3DE.

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Premier Miton Investors has expressed its own views and opinions on this website, and these may change and there is no obligation to update them. Nothing in this website should be construed as investment, tax, legal or other advice. The information contained herein is subject to change without notice.

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By clicking accept you acknowledge that your use of this website is subject to our privacy policy, cookie policy and our general legal and compliance information available on our website.

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 “US Person” generally includes the following: (a) any natural person resident in the United States; (b) a partnership or corporation organised or incorporated under the laws of the United States; (c) any estate of which any executor, or administrator, is a US Person; (d) any trust of which any trustee is a US Person; (e) any agency or branch of a non-US entity located in the United States; (f) any non-discretionary account or similar account (other than an estate or trust) for the benefit or account of a US Person; (g) any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organised, incorporated or (if an individual) resident in the United States; and (h) any partnership or corporation if: i. organised or incorporated under the laws of any non-US jurisdiction; ii. formed by a US Person principally for the purpose of investing in securities not registered under the 1933 Act. In addition, a Shareholder must qualify as a “Non-United States Person” as used in the US Commodity Futures Trading Commission (“CFTC”) Rule 4.7.

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The information contained on this website does not constitute an offer or solicitation to sell or purchase shares in the funds or portfolios or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

Website terms of use: Please ensure you have read and accept the full 'website terms of use' before continuing.

Read the full 'website terms of use' >

This section of the website and the content it contains is for professional financial advisers only and should not be relied upon, or circulated to, retail clients. Retail clients should refer to the Individual Investor's site.

The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell shares in the funds or portfolio or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products, represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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The information in this site is solely for the purpose of acquiring information as, or for, an Institutional Investor (a corporate or other non-retail investment professional acting for their own account). This information must not be used or relied upon by anyone that may be considered a “retail investor” by the home regulator of the country from which this site is accessed.

The information contained in this website is directed at persons who are resident in the United Kingdom and complies with appropriate UK legislation and regulations and is not directed at, nor intended for distribution to, or use by, persons in any jurisdiction in which the dissemination of such investment related information is not permitted.

The information or opinions contained herein should not be construed as an offer, or solicitation to deal in any investment or fund nor shall any such investment products or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful or in which the person making the offer solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation.

Premier Miton Investors has expressed its own views and opinions on this website, and these may change and there is no obligation to update them. Nothing in this website should be construed as investment, tax, legal or other advice. The information contained herein is subject to change without notice.

Neither Premier Miton Investors nor any of its group companies or affiliates accepts any liability for any losses arising directly or indirectly from any information accessed from this website, to the fullest extent permitted by law.

By clicking accept you acknowledge that your use of this website is subject to our privacy policy, cookie policy and our general legal and compliance information available on our website.

THE UNITED STATES OF AMERICA:The investment products referred to on this website have not been and will not be registered under the United States Securities Act of 1933, as amended. They may not be offered or sold in the United States of America, its territories and possessions, any State of the United States of America or the District of Columbia or offered, sold or transferred to US Persons (as defined below). The investment products referred to on this website have not been and will not be registered under the United States Investment Company Act of 1940, as amended. Premier Portfolio Managers Limited has not been and will not be registered under the United States Investment Advisers Act of 1940.

“US Person” generally includes the following: (a) any natural person resident in the United States; (b) a partnership or corporation organised or incorporated under the laws of the United States; (c) any estate of which any executor, or administrator, is a US Person; (d) any trust of which any trustee is a US Person; (e) any agency or branch of a non-US entity located in the United States; (f) any non-discretionary account or similar account (other than an estate or trust) for the benefit or account of a US Person; (g) any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organised, incorporated or (if an individual) resident in the United States; and (h) any partnership or corporation if: i. organised or incorporated under the laws of any non-US jurisdiction; ii. formed by a US Person principally for the purpose of investing in securities not registered under the 1933 Act. In addition, a Shareholder must qualify as a “Non-United States Person” as used in the US Commodity Futures Trading Commission (“CFTC”) Rule 4.7.

Investment products referred to on this website may not be sold or transferred to a US citizen, or an entity taxed as such or required to file a tax return as such under the United States federal income tax laws (a “US Tax Resident”).

The information in this site is solely for the purpose of acquiring information as, or for, an Institutional Investor (a corporate or other non-retail investment professional acting for their own account). This information must not be used or relied upon by anyone that may be considered a “retail investor” by the home regulator of the country from which this site is accessed.  

The information contained in this website is directed at persons who are resident in the United Kingdom and complies with appropriate UK legislation and regulations and is not directed at, nor intended for distribution to, or use by, persons in any jurisdiction in which the dissemination of such investment related information is not permitted.

The information or opinions contained herein should not be construed as an offer, or solicitation to deal in any investment or fund nor shall any such investment products or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful or in which the person making the offer solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation.

Premier Miton Investors has expressed its own views and opinions on this website, and these may change and there is no obligation to update them. Nothing in this website should be construed as investment, tax, legal or other advice. The information contained herein is subject to change without notice.

Neither Premier Miton Investors nor any of its group companies or affiliates accepts any liability for any losses arising directly or indirectly from any information accessed from this website, to the fullest extent permitted by law.

By clicking accept you acknowledge that your use of this website is subject to our privacy policy, cookie policy and our general legal and compliance information available on our website.

THE UNITED STATES OF AMERICA: The investment products referred to on this website have not been and will not be registered under the United States Securities Act of 1933, as amended. They may not be offered or sold in the United States of America, its territories and possessions, any State of the United States of America or the District of Columbia or offered, sold or transferred to US Persons (as defined below). The investment products referred to on this website have not been and will not be registered under the United States Investment Company Act of 1940, as amended. Premier Portfolio Managers Limited has not been and will not be registered under the United States Investment Advisers Act of 1940.

 “US Person” generally includes the following: (a) any natural person resident in the United States; (b) a partnership or corporation organised or incorporated under the laws of the United States; (c) any estate of which any executor, or administrator, is a US Person; (d) any trust of which any trustee is a US Person; (e) any agency or branch of a non-US entity located in the United States; (f) any non-discretionary account or similar account (other than an estate or trust) for the benefit or account of a US Person; (g) any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organised, incorporated or (if an individual) resident in the United States; and (h) any partnership or corporation if: i. organised or incorporated under the laws of any non-US jurisdiction; ii. formed by a US Person principally for the purpose of investing in securities not registered under the 1933 Act. In addition, a Shareholder must qualify as a “Non-United States Person” as used in the US Commodity Futures Trading Commission (“CFTC”) Rule 4.7.

 Investment products referred to on this website may not be sold or transferred to a US citizen, or an entity taxed as such or required to file a tax return as such under the United States federal income tax laws (a “US Tax Resident”). If those investment products are held by a US Person, a US Tax Resident or a person who does not qualify as a “Non-United States Person” within the meaning of CFTC Rule 4.7, Premier Portfolio Managers Limited shall be entitled to redeem such Shareholder’s entire holdings.