Outlook 2024: Rampant debt and a rancorous election
The Jupiter Merlin team discuss their 2024 outlook, when central banks may battle with markets over policy. Meanwhile, an extraordinary US election approaches.
The most pressing need early in 2024 is that the US resolves its debt crisis. Thanks to fiscal incontinence and an inability to remain within the maximum permitted borrowings’ ceiling prescribed by Congress, the Biden administration remains in financial special measures when it comes to paying for public services. The deadline for resolution expires on 19th January, beyond which funding will be withdrawn and public services will begin to close with a final guillotine of 2nd February. The political sensitivity is obvious: the fiscal competence and responsibility of both parties is under the spotlight in an election year. The alternative to a public sector shutdown, and the nuclear option which nobody wishes to trigger either accidentally or deliberately, is that the US government defaults on its loans.
Central bankers are determined to stick to the narrative of interest rates being “higher for longer” and “it’s still too early to be contemplating cuts”, as recently reinforced by the Governor of the Bank of England. Conversely, markets are telling the central banks, and the Federal Reserve in particular, that if they were not cautious enough two years ago, they are being far too conservative now. Who will blink first? Time will tell whether the markets are to be disappointed again, or the central banks are forced to capitulate, or whether pistols remain drawn but nobody dares move. At the centre of the argument is the cost of failing to get firmly to grips with inflation versus the cost of being too firm and wrecking the economy. Deft policy surgery is made more difficult by interest rates being blunt instruments rather than precision tools.
A rancorous US election is fast approaching
The UK general election in 2024 (technically, it is allowed to be as late as January 2025 but will be unusually coincident with the US election) will be highly relevant domestically but a relative sideshow for global investors. However, a potential simultaneous change of administration in London and Washington, were both to happen, could alter the dynamics in NATO. That would provide a further challenge in forecasting the future movement in the global geopolitical tectonic plates, as well as potentially changing the direction of the war in Ukraine.
Our summary a year ago is enduring. We might have seen elements of today’s conditions before, but none of us has ever seen them in their totality in our investment careers, however long they span. Opportunities are there to be taken, but new risks present themselves and must be managed or mitigated against. From an investment perspective, we believe it pays to be open-minded and adaptable rather than prescriptive and dogmatic. Aiming to keep up in the good times, trying to lose less in more challenging conditions, this is what we believe goes to the heart of compounding long-term wealth.
Authors
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Outlook 2024: A pivotal year?
Periods of transition often raise interesting questions, and this year investors are faced with plenty as they look ahead to what 2024 may bring. Will Western central banks finally start cutting interest rates? Will geopolitical tensions calm or further escalate? And what might a fraught US Presidential election mean for the world?
The value of active minds: independent thinking
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