With another year drawing to a close, I found myself reading some quotes on reflection over the weekend, as I thought about how quickly the years seem to be passing. Turning 34 in a few weeks, on January 3rd for anyone who wants to buy me a present, might have something to do with it, but I think the end of the year is a great time to reflect on your life, to return to those standout memories and to challenge yourself to rise above the status quo and seek new challenges beyond the mundane of everyday life that consumes most people.
One quote that peaked my interest and got me thinking is from a Danish philosopher in the 1800’s by the name of Søren Kierkegaard:
“Life can only be understood backwards, but it must be lived forwards”
While there is no denying life must be lived forwards I’m not quite sure that even when we look back at our life that we can truly understand everything. Yet what we do understand from our experiences, those learnings that we pick up along the way, can be used to improve upon our decision making and how we live our life in the years ahead.
I have never really had much time for the ‘everything happens for a reason’ cliche. It is a useful coping mechanism but ultimately the choices we make are behind the direction our life takes. Of course, luck might play its part in terms of the outcome of our decisions, but if you never made the decision to begin with, that outcome certainly would never have happened.
As we reflect on financial markets in 2015, much of what has happened will make sense to people, bringing the rise of a new army of experts revelling in hindsight. As expected, the predominant theme driving equity and bond markets remained the policy action of the major central banks, with the European Central Bank (ECB) and the People’s Bank of China (PBOC) leading the easing party this year.
Still, even as we may be able to derive reasons for the price action in financial markets, there is a lot we do not fully understand in terms of the fundamentals, the health of the consumer, companies and the overall economy. While price action will most often reflect the true state of those fundamentals, we know from 2006 and 2007 that market participants can drive markets higher even as the cracks are widening at the foundations of an economy.
Central banks have made it even more difficult to infer from financial markets whether the global economy is on a strong footing, given their pervasive influence over market participants, who have been motivated to more aggressively buy risk assets. The cracks deepening across the emerging markets, commodities, and high yields bonds, are reason enough to stay vigilant.
If we look at commodities, one of the worst performing asset classes in 2015, we can explain away this past performance by citing oversupply issues and the slowdown in the global economy. However, we have yet to fully understand whether it is actually signalling a more protracted shift in the Chinese economy, something the rest of the world will be slow to face up to. Certainly, China’s Central Bank will be forced to play a heavier handed role in navigating the Chinese economy over the coming years, with lower interest rates and a weaker currency increasingly likely in 2016.
As ever, just like life, the outlook for the economy and financial markets is unclear. There are a number of probable outcomes that we can envisage. The most important thing for members of a pension scheme is to align oneself to the most appropriate fund given one’s willingness and ability to take risk, time to retirement and overall retirement goal. Members should taking the end of year break as an opportunity to reassess their own risk and return objectives, to set realistic goals and to ensure their existing investments remain suitable.
Hopefully, you’ve found my musings over the year interesting, and my efforts to make the subject of financial markets and the economy more accessible to everyone have not been wasted. We’ll go again in 2016, have a good Christmas and a happy New Year!
Best Wishes, Vincent