U.S. stockmarkets have been highly volatile over the last two weeks. Nothing like a good scare on the global share markets to make people wonder if their money is safe.
The volatility has induced all sorts of unhelpful histrionics about the end of capitalism, and all kinds of media love this fear.
Markets are now happily recovering.
But let’s separate global private debt in mortgages – which is where interest rates are directly important – from the sharemarket.
The most practical way to evaluate financial anxiety is though the interests of ourselves and those who rely on us.
For the sharemarket part of that anxiety, the most useful way to evaluate our interests is through Kiwisaver.
Kiwisaver is a voluntary work-based savings initiative, brought in by the Helen Clark Labour government back in the day. You get to withdraw money out of it after you turn 65, or if you need to as a deposit for your first house.
Kiwisaver is by and large the only way most New Zealanders will have their savings directly exposed to global investment markets.
If you have your Kiwisaver scheme managed by the same institution as your main bank, you should be able to have the balances and the tracking visible as one statement. At least one bank registers your Kiwisaver amount as an offset against your total debt with that same bank, and provides visibility across all accounts including Kiwisaver. Which is pretty cool when that total interest payment goes down and the total principle payment can be adjusted against it.
There are also a range of risk profiles that you can consider, and most of the good schemes enable you to alter those profiles. So you can see things go up and down, faster or slower, depending on what risk-reward profile you choose. Its certainly not a kind of nanny-state anaesthetic in which you just relax and it’s all done for you. Your hand should be on the tiller, and you issue the direction instructions.
That means choosing the degree of global investment volatility you are exposed to. No guarantees with fund managers – and you pay for it. But there’s a lot of stress avoided in having things managed for you.
There’s also legislation coming up in the NZ Parliament (go Fletcher Tabuteau!) for the state (it will probably be NZSuper) to run its own Kiwisaver fund as well (i.e. more directly than Kiwibank’s one).
So how much of our anxiety do we all really want managed? My suggestion is: manage your anxiety through the interests of yourself and the people who rely on you.
To compare our relative levels of safety at this juncture, it is worth tracking assets favoured in times of turmoil.
At about US$1,335 an ounce, gold is actually down from its highs last month of US $1,358. So unless you have a whole bunch of gold sitting somewhere, don’t worry too hard about that.
In currency markets, a Bloomberg index of yen against the US dollar, euro, pound and six other major peers is hovering at around its lowest levels since early 2016.
Measures of stresses in the banking system such as the Libor-OIS spread are little changed over the past month, suggesting no one is worried about banks getting in trouble. If you are keen you can look at the U.S. Federal Reserve stress testing models:
As our Minister of Finance has noted, our economy is trucking along just fine.
Two weeks ago, the IMF raised its forecast of global economic growth this year to 3.9%, up .02% from its projection last October. That’s the fastest rate since 2011.
I recall two years ago there was another bit of global financial heartburn, when concerns about a slowdown in China’s economy and high debt levels there sent the MSCI All-Country World Index down 1.93% in December 2015 and 6.09% in the first quarter of 2016. But then their economy rebounded for two straight quarters in a row, and continues trucking along.
Right now there’s plenty to be anxious in the world. The sharemarket is of any real interest only if you are exposed to it. If you are considering your own financial interests, and want a modicum of exposure to the global financial investment systems, talk to your Kiwisaver team.