Risks and opportunities for 2017

22.12.2016 • Investing

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Charlie Morris – Fleet Street Letter (Great Britain) –

In this issue, I will look back at 2016 and discuss the outlook for 2017. But before we get to that, and because it’s Christmas, I have decided to spill the beans. When I was asked to speak at the MoneyWeek Conference in the autumn, I scrambled for an idea that would wow the audience in the short slot that I was allotted. I decided to discuss the Money Map – or at least, that is what my publisher named it.
It describes the behaviour of different assets under different monetary regimes. That begs the question, why haven’t I mentioned it in The Fleet Street Letter until now? Readers have been sending me questions about it, and it is high time I gave them answers. It’s hard to explain in print, and much easier to explain while waving your arms on a stage. But above all, I fear that this piece will lead to more questions than answers. I’ll do my best.

I prefer Treasure Map to Money Map. There is a y-axis that denotes inflation and an x-axis that denotes bond yields. The preferred asset style is in each quadrant. For example, gold performs best when inflation is rising and bond yields are falling. To be more specific, I mean long-term bond yields and future expectations rather than what you can see through the rearview mirror.
For gold to win, the gap between yields and inflation, or real interest rates, must be falling. That is the perfect golden scenario. Unfortunately for gold, over the past three months, the opposite has been true as real yields have risen.

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