The talk as I write is all about Syria and asking when (not whether) the West will take action against the Asard regime. The dastardly crime of use of chemical weapons appears to have been perpetrated and the West is outraged.
We seem to accept other forms of death in War but this one is totally unacceptable.
What does this mean for you as an investor?
Generally uncertainty spooks markets.
Conflict generally reduces the values of risky assets.
The Gold price will often rise during this period.
Have we seen any evidence of movements? YES
Look at the Gold chart below
Those people who have bought gold when the price was in the US$1240 range will feel very happy about the price today
IRG pointed out that Gold appeared to be getting near the bottom of its cycle over the no prescription online pharmacy last month or so .Some clients advised us that they had bought physical Gold , some gold stocks or futures.
The Gold trend is one indicator.
The interest rates in New Zealand have been stable
That has not been the case in the US.
See this chart below
It is clear that interest rates have risen .
This has 2 effects
- Holders of long dated bonds have lost value.
- If they wish to sell them now they will receive less for them than they would have 3 months ago.
If they hold they will of course receive the same interest that they had expected. The issue is if they have to sell.
Q: Does this mean Syrian War?
A: Of Course not. There are many factors that contribute to the interest rate. International uncertainty is simply one of these.
Q: Do you think the market expects uncertainty?
A: Yes. The significant rise is a clear signal.
Q: Does this mean NZ rates will rise?
A: No, not at all. The rates are set by the NZ market due to a large number of the interactive factors in the market including: The NZ Reserve Bank, the demand for funds, the supply of funds, international confidence, performance of the economy etc.
Q: What will happen if NZ rates rise?
A: As with the US, those with longer dated Bonds will lose capital value. The interest rate will stay the same, but on sale the bond will have less value.
Q: Can I protect myself against this?
A: It depends on your personal position. This article is not giving you Personal advice.
We are talking in general economic terms.
The key factor is if you think interest rates will rise, the shorter term your investments are (with all other matters being equal e.g. the quality of bond , the rating etc) the less you lose.
Generally you should chose a shorter investment period in a rising interest rate environment .
The longer the period the greater the loss of value e.g.. if rates rise 2% pa and you have a 7 year bond , the loss of value could be 2 x 7 i.e .14% !!
Q: Should I sell all my Bonds?
A: That is your choice. You should take advice from a suitably qualified person.
In confident times people are often happy to take higher risks.
The result is increased demand and higher prices.
As a result the performance often lulls a person into a comfort zone.
In LESS positive times we see BAD news having major effects on the market prices.
People get jittery and sell. Prices can drop quickly.
The result is price volatility .
An example in the NZ market has been Moa Brewing.
The business announced it would miss sales expectations by 30%. The market quickly took 40% off the price($1.24cps down to .74cps )
This showed that the market will punish on the downside. This is a very good example of Risky assets being punished.
We started talking about the Syrian issue.
But it is clear the issues are bigger than this.
The markets of Gold and US interest rates plus NZ riskier stocks give a clear message.
Be very careful
Review your portfolio
Speak to qualified advisors
Don’t just sit and say “ This investment has been OK in the past so why change “ .
Think about the current market and make decisions .It is very easy to see wealth eroded in this market.
- Whether you want more or less Gold
- More or less Stocks
- More or less Bonds
It is clear there are issues developing.
Investors It is time to think to decide and to act.
Brent D King
B.Com , C.A. C.M.A. ,R.F.A.
Managing Director and Owner of
- King Capital & Investment Ltd
- Investment Research Group Ltd
- Equity Investment Advisors ltd
- MoneyonLine Ltd