Interest rates and inflation have been on a downward trajectory since the late 80s, a 30 year trend. Paul Moore says 2016 was an inflection point and expects inflation to return. For the majority of investors this represents unchartered territory, so how do you approach such a foreign outlook?
People need to start thinking differently about their investment ideas and where there’s likely to be opportunities to put your capital. It’s going to be very different from the 30 years we’ve seen
- Inflation rates and interest rates have now been declining for 30 years, there are very few managers that have invested in a sustained period of inflation
- Moore does believe that interest rates and inflation have bottomed, he also thinks that the official numbers are not reflective of the true underlying levels of inflation, “we suspect it’s a little tighter than people realise”
- While inflation is unlikely to spike in the short term it is emerging
- Investors need to start thinking differently about their investment ideas and where there is likely to be opportunities to put your capital. It’s going to be very different to the past 30 years that we’ve seen
- Don’t underestimate how far some asset classes, such as property, have come
- Over the next 10 years interest rates are likely to be quite different to what we’ve become accustomed to over the past 5 years
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Being the devil’s advocate on this one:- A number of recent articles comparing listed commercial property and listed industrial companies since the GFC suggest property is overvalued, but this appears to be coming off a low base for property. Has commercial property actually done better than industrial over the last 30 years? I have not been able to find anything to either confirm or refute. I’ve had an interest in things financial since I bought my first shares at age 17 in 1973, so I experienced the subsequent 14 years of rising interest rates. Again, I can find no comparative information in support or otherwise, but I sought of remember (but could be totally wrong) that listed commercial property did not underperform in comparison over that period. The headline property collapses of the mid 70s such as Cambridge Credit and Associated Securities involved residential development. Perhaps there is a lesson in that.