Waiting for the consumer to return

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The act of investing calls for the decision-maker to rein in and master their emotions. Faced with the daily torrent of price- and market-sensitive news, it is crucial to be able to distinguish genuine information from mere noise or rumour.This means picking out news that is really influential from items causing short-lived ripples which mask a major underlying trend.This sort of analysis makes it essential to assess the economic and financial background accurately and to pinpoint underlying factors along with the crucial variables influencing them.

Looking back over past decades, we see that every era bears the imprint of several long-running fundamental trends which drove some asset classes and investment strategies to outperform for a number of years. In the 1970s, for example, we witnessed the demise of the Bretton Woods currency system, oil shocks and escalating inflation, which led to gold, oil companies’ shares, the Swiss franc and the yen outperforming. In mid-September, Pictet’s Investment Strategy Committee attempted to draw up a picture of the likely economic and financial backdrop for the years ahead. Our approach had three basic stages.To begin with, we tried to assess what expected returns were being priced into current valuations: in other words, with no change in the basic paradigm, what returns and risks could be expected for the main asset classes? During the next stage, we looked into what sort of scenario might lead to significant divergences, in either a positive or a negative direction, from our initial appraisal. Finally, we sought to pinpoint structural breaks that might lead towards a new paradigm, since major trend-shifts of this type, in the past, have been shown to throw up very lucrative and rewarding opportunities.