Mini Awareness Update
27 February 2021
To all Financial Friends
We are at a point where almost all assets have, I believe just temporarily, fallen in price. Uncertainty leaves investors worrying about inflation getting out of hand. Government bonds and Gilts in the past week have fallen as has the FTSE 100 Index and broadly other equities, including Technology holdings.
Happily, many Financial Friends, now holding Index Linked Bonds and Gilts will have, on average, seen a rise of over 2% just on Friday of this past week. Investors in this asset class can hope that their move into these inflation linked bonds may continue to pay off.
The money redeemed by investors selling off bonds not index linked, can be expected to move into equities. This should, in time, cause the FTSE 100 and other broader equity holdings to rise. Technology holdings are seen at some risk. Technology has had a a good profitable run but are now considered overpriced. Concerns over the sector failing to pay it's due tax contributions is leading to President Joe Biden considering a tax squeeze on the sector.
As far back as October last year our commentary has highlighted the need to look out for the TURNING POINT. The major economies have been supported/stimulated by maintaining low interest rates, massive borrowing and 'printing' money (quantitative easing). This support must come to an end sooner than later.
We can expect Mr Sunak (Chancellor of the Exchequer) in his budget on Wednesday this week to pump in even more money to support the system. He needs still to support the economy as we move, we trust, out of Covid 19. He will warn that such support cannot continue. President Joe Biden is also set on a similar boost to his economy. Good news for equities but bad news for fixed interest non index linked bonds.
We will be watching for the 'turning point' when the economic stimulus stops and the major economies are left to make it on their own.
PLEASE NOTE: A financial or economic commentary like these, are written to explain, interpret or give an opinion on economic events and markets to help readers understand what’s happening and why it matters. Designed to help you make informed decisions of your own by making you aware of opportunities, risks and potential rewards in the market.
