Investment Newsletter – September 2021
The World Health Organization is warning that global COVID cases could pass 300 million by early next year if the pandemic continues in its current direction, calling on world leaders to slow the spread by providing more testing supplies, treatments and vaccines to poorer nations.
Global debt increased by more than USD 29 Trillion in 2020 to offset the pandemic’s economic toll, bringing the global debt total to an all-time high of USD 281 Trillion by the end of 2020, or more than 355% of global GDP, according to the Institute of International Finance (IIF). Governments with big budget deficits are set to increase debt by another USD 10 Trillion in 2021 as political and social pressures make it hard to curb spending, pushing government debt load past USD 92 Trillion by end-2021, the IIF estimates.
The most significant risk for the Fed is getting trapped between fighting rising inflation and keeping consumer confidence elevated through higher asset prices in such an uncertain environment. If Fed choose to hike rates, the stock market will crash as the real economy remain weak. Nevertheless, a decision by Fed to try and support higher asset prices may get the economy crushed by higher inflation (stagflation). Hence, it is a “nowin” outcome and currently remains the most significant risk to investors betting on monetary policy. For instance, investors “believe” monetary accommodation will remain, and therefore there is no reason to reduce speculative “risk-taking” endeavours. Yet, the US stock market is currently strongly overvalued.
