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These uncertain times call for an investment strategy with sufficient diversification and a heavier weighting in hard assets such as commodities and precious metals. That's what Jeroen Blokland says in a conversation at Holland Gold. These investments do well in high inflation and geopolitical turmoil. He expects volatility in financial markets to remain high for the foreseeable future, so investors should proceed with caution.
Investors are now mainly reacting to developments in Ukraine, but the Federal Reserve's interest rate policy also plays a role in the background. The U.S. central bank is expected to raise interest rates this year. As a result, prices of growth stocks may come under pressure. The value of these stocks is largely based on future earnings growth, which is worth less when interest rates rise. As a result, relatively cheap value stocks are currently more attractive, according to Blokland.
According to the market analyst of True Insights it was to be expected that gold would benefit from the geopolitical turmoil. The Gold price has risen sharply since the Russian invasion of Ukraine, even reaching a new record in euros this week. He noticed that the other safe haven of U.S. Treasuries performed much less well. From this, we may be able to conclude that the market is pricing in a further rise in interest rates. That makes it less attractive to own government bonds. For the defensive investor, inflation-adjusted bonds can still be interesting. These compensate the investor for a scenario with very high inflation.
Blokland believes that central banks have waited too long to raise interest rates, leaving them with few tools left to support the economy. Central banks have also further expanded their range of tasks. For example, the ECB has now set itself the goal of ensuring favourable lending conditions for governments and businesses. Buying government bonds has also become part of regular monetary policy. This strategy of central banks is very risky if inflation remains high and the likelihood of an economic recession increases. They will then no longer be able to intervene by, for example, lowering interest rates.
Whether there will be a recession is difficult to predict. A relatively reliable indicator of this is the yield curve. This is because it provides information about the economic forecasts. If the interest rate on short-term government bonds is higher than that on government bonds with a longer maturity, this is referred to as an inverted yield curve. If that happens, there is a good chance that a recession will follow. Interest rates on short-term government bonds have risen sharply in recent months, further flattening the yield curve. That's another indicator that investors should keep an eye on. Watch the full conversation with Jeroen Blokland on the YouTube channel from Holland Gold. 
Jeroen Blokland: "These times call for more hard assets in the portfolio"
This contribution comes from Geotrendlines
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On behalf of Holland Gold, Paul Buitink and Joris Beemsterboer interview various economists and experts in the field of macroeconomics. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here to subscribe.
