Interview
Why gold, bonds and the dollar are underwhelming investors | The Economist
- Investors currently anticipate that benefits from economic growth and the AI revolution will outweigh damage from the Iran oil shock, though this assessment carries the risk of "muscle memory" from past crises where share prices recovered quickly after plunges during events like COVID, the Russia-Ukraine conflict, and the US bank crisis.
- The current geopolitical situation presents specific risks distinct from historical precedents, including a permanent destruction of oil output in the Strait of Hormuz that will persist even after the war ends, widespread knock-on effects, and an uncertain timeframe for the conflict's conclusion.
- Market conditions show a potential bubble risk where investors buy shares due to a lack of alternatives rather than organic corporate profit growth; this is reinforced by the explicit note that companies will not generate ballooning profits, alongside the observation that gold has lost its traditional haven status over a five-year rally and the dollar has stabilized rather than falling after recent tariffs.
- Economic pressures include expected inflation rises driven by higher oil and energy costs, coupled with government borrowing to protect citizens, which exacerbates existing unsustainable fiscal paths in the rich world and threatens future government bond values.
- In a severe recession scenario, interest rates are expected to fall, causing government bond prices to rise while other assets fall, yet current investor expectations posit that corporate profits will rise with inflation to outpace the loss of value from holding cash, bank accounts, or bonds.