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Forecasting the future #finance

Forecasting the future is even more difficult in a pandemic, there are so many variables. We have to get some idea of how the world economy will develop to successfully invest. We can look back at previous recessions and we know that inflation is a possibility and we have already seen the central banks cutting interest rates and deploying quantitative easing. That stimulus has boosted the stock markets. There was a suggestion this week that the Federal Reserve’s inflation target might be raised from 2%. That would probably trigger a similar move by other central banks. Inflation of more than 2% might now be seen as a good thing, inflating away both personal debt, business debt and the national debt.

Forecasting the future

Gold

Gold is a good hedge against inflation and we have already seen it soar through the record price of $1500 an ounce but the price is now falling. Investors are no longer favouring safe havens and are looking to profit from the pandemic. The most promising stocks seem to be the financial ones. The banks are top of my list for potential. At the bottom of the list are airlines and associated industries, they could take a decade or more to recover. There are a few companies that actually benefited from the pandemic. Tesco is benefiting as more people choose home delivery but they didn’t respond as well as Asda and Morrisons. Kingfisher seems to be recovering quickly and had it’s B&Q and Screwfix stores open again quickly with social distancing in place.

eToro

etoro now allows me to consider US stocks and even Hong Kong. I have been looking at the technology stocks and I bought Nvidia. It’s too early to say if that was a good choice. I also bought Avast which recently got promoted to the FTSE 100 again it’s too early to say if that was a good choice. I’m down over 6% so far. The market is very volatile so there are big losses and big gains. I am also favouring some of the pharmaceuticals such as GSK and AstraZeneca, with the latter involved in the race for a vaccine.

Diversify

As always you should diversify and not put all you eggs in one basket. The minimum you can invest in any one stock is $50 with eToro so that is a good amount to invest unless you’re super-rich. The minimum you can invest in commodities is much higher, $2000 for gold and natural gas which have been performing well, lately.

Forecasting the future

My attempts at forecasting the future are based on previous recessions particularly the 2008 crash which saw QE first deployed. I think the response of central banks will be largely the same as in 2008 and the following years. There could be one big difference, they could allow inflation to go beyond the 2% barrier. If inflation is high and the government resists public sector pay rises which recent action suggests then everyone could be a little worse off with the exception of those with personal debt. Personal debt, like government debt, will be inflated away in time.

Short term

In the short term then, people could see inflation rising faster than wages. It might pay to invest now but keep some cash to buffer the difficult times. It doesn’t seem to be a good time to pay your debt down because it might be inflated away in the next few years. We can quite possibly look forward to a pay freeze in the public sector yet again and austerity could again rear it’s ugly head, possibly in a different guise.

Invest wisely

I shall be thrifty and frugal and try to invest wisely.

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