There is a school of thought that says that the longer any kind of economic disaster is held off, the less likely it is to ever come. So because the dollar has not yet collapsed under the strain of America’s huge current account deficit, it probably never will; because the high oil price hasn’t yet fed through into official inflation numbers, it probably won’t become a problem and so bond prices will never fall from their current ridiculously elevated levels; because house prices haven’t collapsed they won’t collapse; and because markets did well last year there is no reason to believe the mutterings from the bears suggesting the same might not happen this year.
I’m not so sure. Instead, it rather seems to me that if it looks like something should happen, the longer it doesn’t happen the more likely it is to happen. So from my point of view the dollar is more likely to tumble than it was last year (nothing’s changed to suggest it shouldn’t), house prices here and in the US are more likely to fall (they’re as expensive as ever), and markets, both bond and equity, are as vulnerable as ever (in many cases even more so given that they are more expensive). This is not to say that disaster will come in 2006, just to say that the fact it didn’t come last year is no reason to think it won’t.
So with that in mind, where should you put your money this year? We’re still firm believers in the long-term nature of the commodity bull market. We think that oil and other energy sources are still well worth having exposure too and we would – as ever – want to have money in silver and in gold. We’d also want to find a way this year to get better exposure to the soft commodities sector without actually having to buy our own plantations.
We look at a few ways to do this in our cover story, but what I really hope for this year is that someone will launch a fund that will give investors diversified access to the market as a whole. Spread betting on the sugar price is not something we’d recommend to everyone, but we’d have no hesitation in recommending a good ‘softs’ fund for even the most conservative of investors in 2006.
We do like a few equity markets. The Japanese market (a long-term Moneyweek favourite) could probably do with a breather, but our other favourite area, Europe, still looks cheap given rising earnings and the glimmers of economic recovery across the continent.
Otherwise, we’d keep an eye on India – it’s expensive now, but there are bound to be corrections during the year that long-term investors can buy into. Even bull markets, as short-term investors discover over and over again, never move in straight lines.