Looking back and looking forward from November 2022
This quick note is to share thoughts on the market. Although, remember of course, that we have no crystal ball and so these thoughts are nothing more than informed opinion.
Inflation control is an extremely inexact and, to be frank, brutal affair. Raising interest rates “cools” the economy, but if the economy is not “hot” then it forces a recession. Recession, or the shrinking of the economy, reduces spending and that forces prices down.
The risk of “runaway” inflation is considered so great that it is better to force the economy into recession.
At the moment, the world as a whole is moving towards recession, which is a moderately unusual situation, as in the past the countries / continents recessionary cycles would be less in sync. Another strange symmetry is that the different investment classes such as bonds, gilts and equity have also been moving together.
We think that it all goes back to the global recession of 2008 that followed the banking crisis. That problem was navigated by various national banks pumping billions and billions into their economies – quantitative easing – or in old fashioned parlance – printing money.
Printing money is well known for creating inflation, but it didn’t, not for over a decade. In the end prices were given an upwards push by the global supply chain crisis triggered by the Covid and exacerbated by the Ever Given Suez Canal crisis. Added to those “supply side” price increases Putin’s war in Ukraine forced oil, gas and wheat prices to skyrocket.
In the UK, which is a big economy and has a considerable influence on the global economy, the impact of Brexit disrupting our trade balance and the debacle of the Truss “mini”-budget have contributed further to the malaise.
2008 was a global banking crisis and the response was global. Covid was a global pandemic, and the impact of the Putin’s ambitions are global as he fights militarily in Ukraine and economically with oil and gas supplies.
Added to those real supply side issues, although the tech sector stepped into the breach to support homeworking during Covid had created a bubble of positivity in 2021, sadly that has been bursting during 2022 as working practices reverted and the global economy started shrinking.
All these economically negative factors make for a bleak outlook and overall, they have, and they are supressing sentiment, across all classes and in all markets.
At KGJ we invest in well established, well regulated markets and we turn to fund managers with a proven track record in our chosen classes and markets. We are not immune to the waves of changing sentiment, but we are investing in real businesses with real customers providing real products and services.
It has been tough this year, and although we are not through it yet, the interest rates have risen, the many nations falling into recession show they are working, and strong braking pressure is being applied to inflation.
Once inflation tops out and interest rates stop rising the market will change direction. The inflation will have reduced the overall burden of debt, green energy solutions will be rapidly developed to end reliance on fossil fuels for climate reasons and to prevent the economic warfare that has blossomed in 2021. In Europe, Ukraine will have to be rebuilt, and around the world wages will catch up with inflation. All these factors will directly and indirectly boost the emerging bull market. Nobody knows the future, but we are hopeful that the damage of the 2008 banking crisis will at last be behind us, and a new normal will be able to emerge and establish in 2023-24.
Sebastian Parsons, KGJ Insurance Brokers (Stourbridge)
Ltd, April 2020
Track human beings’ endeavours through history and notice that the secrets of success in the face of adversity, was not individual genius no matter how important that genius was, because without the supporting framework that allowed the genius to invent, nothing would have happened. For example, let us imagine how technology, which has changed the human experience so much over the generations, come to be developed.
Strip everything away in your mind – just you and nature – what is life like? You are now pre-historic man, Stig-of-the-Dump, your life is almost entirely focussed on obtaining food and shelter. Back to today, and we do not live like that, food is in shops and accommodation available and stable for many people. We have time to do more than finding food and shelter, if we are so inclined and gifted, we may even create an invention or have an insight that changes everything for everyone.
How did food and shelter, the basics of life, come to be so well organised? By sharing tasks, working together, innovating better methods, we improve efficiency and make time to do other things. Other things such as thinking, which generate skills and improve processes. People specialise in growing food, building houses, inventing, making, teaching, healing and so on. The world changes, and it is a virtuous circle, the more it happens the more room there is for innovation.
But what drives this endless development? Ambition. From small to big, young to old, from the cardboard box to Einstein’s Theory of Relativity… all ideas imagined by people, that become real in the world because someone created something new and then other people wanted the idea for themselves too.
Continuing the imaginary journey back from pre-history and
we reach the point when the first skills and specialisations were emerging:
working with animals, growing crops, making with wood, making with metal,
building with stone, and in due course the wheel is developed, then weaving
loom, the printing press, and eventually, the apotheosis of the modern world,
the iPhone is created!
It’s maybe a little silly to rush through history so fast,
but pause to think and you will notice that all those inventions required
someone, or some people, to focus on one thing and all because they were not
foraging for food and shelter. They had support from other people. People worked
together to make it easier for them to obtain food and shelter, so they had
time to think.
That is the secret and the magic of the economy. When we do things for each other we become more efficient and we free up time for thinking and working out how to do it better. Little bit by little bit, over a long time, our world evolves and grows. Doing something that someone else wants or needs is the driving force of the economy. In a rather surprising way, at its very foundations, the economy drives progress through service.
But, of course, this is not a world of unalloyed positivity, success, and achievement. Things go wrong all the time, people suffer and fight, we hit blocks in the road and get diverted into projects that do not help us; we get it wrong; we lose everything. That is life, it has its ups and its downs, its times of progress and its times of struggle (and of course struggle often leads to progress, but that is another topic).
In fact, because there are hard times, genuine worries and
real things-to-fear there is a strong impulse in us all to protect and guard
ourselves, to defend our families and our friends. We harbour our resources and
guard our wealth and power. That is just
These are the two impulses, one is creative and risk taking, and one is defensive and cautious. They are both needed. For example, in a company, traditionally, this division can be seen in the two top management roles: chief executive (CEO) and financial director (FD).
Within a healthy organisation both these roles have to be functional and active to maintain the good health of the company. The CEO, for instance, typically brings a creative risk-taking growth orientated drive which, in a healthy company, we may hope will be tempered by the FD’s caution and financial realism. However, success and growth does require that the CEO slightly has the edge over the FD or the company won’t change and so won’t be able to improve – which is perhaps why the CEO is the top job and the FD is the Number Two.
What happens if it becomes unbalanced one way or the other?
An overly strong CEO could too quickly invest all the reserves so that the
company runs out of cash before the investments can make a return – risking disaster. Or an overly strong FD could hold back
development at the company to protect cash reserves which would cause it to
become uncompetitive and over time start losing contracts – risking disaster.
Just as a micro system such as a company requires balance,
so too does the macro system of the economy require forces to be evenly
balanced but with creativity having a slight edge over defensiveness to tend
towards good health and stability.
Conversely, in any system where the forces are unbalanced there will be
less stability and more chance of crisis.
Just as our ancient forebears progressed by working together,
so for us, success and security come from people working together and
supporting each other’s needs so that individuals can focus on the things that
they are best at. In people’s hearts and
heads, in company board rooms and in regional and national governments creative
striving is balanced by cautious realism as human beings co-create together, in
a myriad of different circumstances, their shared future.
That is the simple common-sense, picture that we use to understand what is happening in the economy and why ethical sustainable investment is the future.
At first encourntering this picture we may doubt the motivation because it feels to so many of us that we go to work for nothing more than our pay, nervertheless, but for the true underlying desire of someone else’s desire for our products or services, there wouldn’t be any work.
We have work because someone else, outside our organisation, wants to have the product or service we are making or providing. By being paid, each co-worker is able to spend their days at work, instead of using their time to obtain food and shelter. They can use their wages to buy what they need from other suppliers and further contribute to the cycle.
A virtuous cycle is established from achieving sales that exceed costs and allow co-workers to be paid enough that they can afford to continue to attend the workplace. The organisation can continue, it is sustainable.
The workings of companies and the economy are a never-ending ebb and flow of creative and defensive activity. It is never static, it is alive with human activity, always changing, a subject of endless fascination to the serious investor.
The underlying positive effect of people collaborating to
serve each other’s needs in this way is apparent from the way the economy has
grown. Here is a chart of the
performance of the stock market vs RPI (Retail Price Index), building society
interest rates and government gilts.
The chart shows:
What £100 invested in 1950 would be worth in
2015 if you had left it in a building society – £5,554
What £100 invested in 1950 would be worth in
2015 if you had invested in government gilts – £81
What is £100 worth in 2015 money – £3058
And finally, what would £100 invested in equity
in 1950 be worth in 2015 – £156,840
Keeping the money in the bank would just about have beaten
inflation, but investing in the economy directly would have beaten it by 30
Although the stock markets go up and down all the time, they
have tended to go up much more than down.
It has been possible for investors to keep their money in the stock
market and ride out the down-turns, so that their wealth, in the long term, has
continued to grow.
We feel that this remarkable phenomenon is not chance, illusion nor the result of wishful thinking. It is the natural consequence and result of people working together to meet other people’s needs.
Of course, much goes wrong. There are many ways of abusing co-workers, shareholders, customers, and the environment; and many opportunities to accumulate wealth out of proportion to anyone’s real needs. Power and wealth polarities exist and when they grow beyond certain limits, feel unfair, unjust and if left unadressed cause conflict and crisis in the short, medium and long term.
An ethical and sustainable approach to business aims to
achieve these goals:
Natural resources are used sustainably
People are treated fairly
We are consciously conscientious
Ethical and sustainable investment is an attempt to ameliorate the destabilising risks that arise from abuse of power and greed. Alone in the world it is easy to believe that your only safe course is to maximise your own power and wealth, but the deeper truth is that our security and well-being is provided by being part of a collaboration, and shared striving in which we are co-dependent on each other for our needs.
All business must obey the law and work within the legal limits of power and wealth, but ethical investment sets a higher bar. Done well, ethical investment will give as positive a return, over a longer term than investments that rely only on, or even seek to avoid, the standards set by law.
To conclude, the driving force of the economy is creativity, which is fostered by a collaborative approach innate in all human beings. Defensiveness and a desire for security also come naturally and these two forces, if slightly dominated by the former, keep the economy moving forwards and upwards. An ethical approach to business encourages this healthy dynamic whilst smoothing out some of the dissonance that can come from the illusionary and unfair security of excessively unequal wealth, power and carelessness with resources.
John has been our financial advisor for a number of years, in fact, not only finance but in other areas as well, such as retirement, will's and insurance. He is knowledgeable in many areas, patient, kind, friendly and super-efficient. We would not hesitate to recommend his services to friends and colleagues (and have done so on many occasions).
I trust you and I would highly recommend you to others (I already have)
Thank you for helping me
out with my mortgage. I was in a very stressful situation but from the
beginning you managed to make every decision an easy one. I seemed to bombard
you with the simplest questions but you always had time for me and made it very
easy to speak to you. You even went out your way to resolve any worries I had
(I am a big worrier) and you kept me up to date at every stage.
I trust you and I would
highly recommend you to others (I already have).
I can't thank you
Safe and trustworthy.
KGJ has looked after our business's commercial insurance needs for many years. We have remained loyal to KGJ as we have always received a reliable service, good advice, and competitive products. We feel in safe and trustworthy hands with Stuart Pearson and all the team at KGJ.
We have received a good return on our investments.
Eight years ago we found ourselves in need of financial
advice regarding investing our severance pay Jim Bodycote at KGJ was
recommended by a friend .
We find him very friendly, professional and approachable and he has given us sound advice always showing patience with our concerns and questions and we have received a good return on our investments.
Ian and Kim
We have recommended his services to family and friends.
What one needs from a financial adviser is honesty, transparency and an ability to explain investments in a way that gives one confidence. I am pleased to say that we have found all this by using Jim as our adviser. It is a further indication of our confidence in Jim that we have recommended his services to family and friends.
I will have no hesitation in recommending KGJ and Anna
I would like to place on record my appreciation of Anna Burford's efforts
last Friday on my behalf.
Due to pick up a new 1 litre Ford Fiesta from the dealers we called my insurer
to do what we thought would be a simple task-change the car over. We were told
that CIS could not insure the new car!
They offered a ridiculously high price with another insurer.
My husband called you and spoke to Anna who found out what we needed and quoted
a much cheaper premium,which we accepted. I was able to drive my new car away
safe in the knowledge I was covered.
I now have my documents which are all OK.
I will have no hesitation in recommending KGJ and Anna.
Many thanks again.
We don’t know what we would do without him…
John has been our adviser for many years, not just for general financial advice and support but on many and diverse areas such as wills, pensions, investments, insurance, mortgages etc. Both for us and other members of our family. We are amazed by the quick response to enquiries, the virtual counselling and family advice and Johns lovely humour. Nothing is too much trouble. We trust John and admire his confidentiality when he is dealing with other members of our family who he also advises. In fact we don't know what we would do without him.
Simon and Janni
We were fortunate to find KGJ
soon after our move to Stourbridge in 1999 and we have been pleased by their
efficiency and the quality of their advice. Financial advice and planning from
John Donnelly has, in particular, been exemplary. John brings clarity and a
down-to-earth approach to the assistance he gives, not to mention a good sense
of humour. We know he will always respond promptly to questions or concerns and
we feel able to trust that he will always give the best advice he can.
John also looked after the
payroll and pensions for the charity we worked for.
Jane & Kevin
Trustworthy and great product knowledge
I have used Johns services on many occasions over the last 15 years. He is reliable, trustworthy, confidential and has great product knowledge. Would I recommend his work? Absolutely!
You have honestly been so fabulous
I just wanted to say thank you so much for all your help, You have honestly been so fabulous and made the whole process so easy and so much less stressful.
Thank you so much :)
My husband and I recently engaged the services of Jim Bodycote, KGJ's
As we requested, Jim undertook a full review of our pre-existing personal
pensions. Having chatted about our future plans for our pension pots and
carried out assesments to determine our acceptable level of investement risk,
Jim went on to make sound recommednations for our pension plans going forward.
We found Jim to be professional, knowlegeable in his field of expertise,
friendly and very importanly, information was relayed to us jargon free. Follow
up service has also been excellent.
I would certainly recommend Jims services to others.
I’m always delighted with the service
I’ve used KGJ as my insurance broker for over ten years, and I’m always delighted with the service they give. It’s so refreshing to be able to speak to a real person on the end of the phone who you feel does get to know you and your individual requirements over time. It may be a little more expensive than one of the Direct Line / Tesco / Compare the stuffed animal type of insurance companies… but it is worth every penny to have someone on your side when you need them.
Caroline has always been very helpful when I have needed advice.
helpful, knowledgeable, thorough and nothing is ever too much
John is super professional and really trusted by our family who he has been advising for years. He is always very helpful, knowledgeable, thorough and nothing is ever too much of an ask. You know with John that he will give you the best possible advice and recommend what is most suited to your needs at the time. He along with the team at KGJ are brilliant!
Expert and honest
Stuart Pearson and the team at KGJ have always been outstanding. I know I am are dealing with a company that is expert, honest and above board. The relationship we have with KGJ is now In It’s 26th year. Need I say more...
Privacy & Cookies Policy
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.