Has the time value of money expired

We have seen a lot of news in the last week about a thing called the inverted yield curve. In the past, this has been a lead signal of looming recession. Negative interest rates are also occurring globally whereby central banks actually pay interest rather than receive interest when they lend money. It is unconventional and indicative of a trend of sovereign nations trying to protect their global trade by devaluing their currency and their terms of trade. In theory, monetary policy is trying to stimulate investment. In reality, it is a very good time to think carefully about risk and reward and perhaps to tread a cautious path.

There is no doubt that wage inflation has been anemic and would appear likely to remain anemic despite rhetoric from unions and labour groups. The primary cause is high underemployment which means people are working less hours than they would like to and fill in any employment gaps at the same wage level thus putting low to no pressure on employers to increase wage rates.

Interest rates are historically low and likely to go lower. Investors are accepting ever growing risk in the search of yield in the capital markets. At price to earnings multiples of 19 or higher, the earnings are insufficient to sustain price leading to a likely price correction at some point which could occur on the whim of a twitter feed or announcement of job numbers, house price index, central bank announcement or any other announcement that shatters the illusion that all is ok.

It is very hard for this writer to see anything materially changing whilst we face such uncertainty in the global political situation. From race riots and mass shootings in the US to Brexit uncertainty, to Hong Kong and South China Sea maneouvring, yellow vest protests in France and increasingly assertive posturing from Russia on the world stage.

Whilst not an advocate for putting cash in an envelope under the mattress, a greater acknowledgement of risk in managing your affairs for the benefit of the current and future generations is required at the present time. Be kind to yourself, and to each other. Try not to let external stresses become a self fulfilling wealth destruction event.