Benjamin Franklin famously stated that, “In life, nothing is certain except death and taxes”. Playing on this undisputable piece of wisdom, to quote the American university professor, John A Paulos, when he said, “Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.” Again, unquestionable realism!

As the past three years have shown us all, we do live in a world that simply has many uncertainties and many insecurities. These appear to be more enhanced with the age of extreme globalisation that we live in these days. The world is a big place, yet it can seem so small sometimes. So much appears intertwined. We see and hear much of what goes on; and this often results in too much information, and certainly too much misinformation and misguided information!

When we invest, we are buying assets for the future that will, typically, be there to produce income and, also, to grow over time. The future has its uncertainties and insecurities, we know, however, history can help us to understand far better these and to explain why; how you say, “c’est la vie”! And with investing, the more we examine history, the less of a concern it becomes for when we determine its reliability over time for the future. Sensible investing in good quality assets pays dividends, especially over time.

As we know, the topics of inflation and monetary policy have dominated the financial markets for much of this year. Global inflation has risen with the ‘double-whammy’ of built-up demand for goods, services, entertainment, and travel, and by the disrupted supply chain on the other side.  As we have anticipated in the past few months, we are now seeing the peaking and likely eventual declining in inflation both here in Australia and around the globe. The desired impact of steadily increasing interest rates to take the heat out of the abnormally high inflation, and the forewarning of this by the central banks, is happening. Increasing interest rates does gradually reduce demand driven inflation. People have less cash to spend, and those with interest bearing debt have even less still.

On the constrained supply part of the equation, this too is improving as more supply lines are getting back in place and, also, with the positive news finally that China, the world’s biggest exporter, is relaxing its inhibitive zero-Covid tolerance rules, and it is re-opening of late more of its many trade avenues. More of the world’s much needed shipping containers and supply ships have been stuck in Chinese ports for many months. World trade needs a substantial number of containers and shipping vessels. Hopefully, this staggering availability problem should dissipate further in the new year.

I certainly believe that consumers are now becoming more price sensitive to the high prices for many goods and services, especially those consumed of a discretionary nature. People like value and not to pay full freight.  Sentiment does now appear to be showing that consumers are not chasing ‘items’ at too high prices, which we have all been frustrated by this year. Some much-needed price stability and more normalised price equilibrium is happening.

Disciplined management by households of their cash flow is paramount now that interest rates have risen, and with the very evident increased prices on many goods and services over the past year. The same control diligence applies for businesses in managing their costs, particularly with wages rises. Life is always a balancing act!

It is a very realistic scenario that with global inflation now subsiding, the central banks will reduce or even pause further interest rate increases in 2023. Economists’ consensus is that for next year, the US and Europe will probably touch into recession (again, a normal part of economic cycles!), while Australia, although not be able to avoid the impact of a global slowdown, should be able to remain recession-free, and even maintain its relatively strong  economic standing it is having. Again, Australia’s tag of being the ‘Lucky Country’ with all its abundances seems to be on the money in these more challenging of times around the world.

With that global scenario, it is hard seeing further rate rises if central banks believe that there is going to be a material global slowdown to a technical global recession. Most technical recessions are mild ones, and ones which happen in the economic cycle. Once more, steady judgement is needed to smooth out, but not crash, the wave of inflation via the implementation of interest rate rises.  Having some inflation is healthy to have, but too much is not so.

It must be remembered that economies do emerge from brushes with recession, so having a long-term view on economic cycles is recommended, especially with our investor hats on.

As we discussed in our previous commentary, even though this year has been challenging for investors with the market gyrations, it has also presented good opportunities to build on more investment assets to portfolios. Buying and holding quality assets is the core of a long-term successful investment strategy. With interest rates rising it has also widened the pool of investment asset choices. Of course, buying them when cheaper, as has certainly been the case this year, enhances that success!

Keeping to the broad investment strategy and adapting the plan to changes in your circumstances when required as you progress through life, leads to a far greater chance of goals being achieved. Good management and solid commitment to a plan makes the journey far smoother. Tending to your investments can be like growing a garden. “Plant a garden in which you can sit when digging days are done ”, adapting Sir Winston Churchill’s advice to good investment philosophy!

As the year of 2022 draws to a close, I would like to sincerely wish you and your families a very Merry Christmas and a Prosperous 2023. Thank you for your trust and continued support. The past three years have been challenging yet insightful for all of us. The new year ahead will have its joys and its challenges, no doubt, but what is life without these! Yet with its ups and downs, life moves on, as do markets! Season Greetings!!

As always, should you have any queries please do not hesitate to contact us.