9 May 2016, Sweden | News
There is something special about spring. The older I get, the more I'm fascinated by the Swedish seasons.. As a child I never had time to think much about the seemingly smooth transition between the cold winter and hot summer.
My thoughts were elsewhere. Tobogganing turned into cycling. Slalom races on my blue mini skis turned into the summer softball games between classes at school. It was an annual seasonal change that felt undramatic and completely natural.
A large number of years later, and with much more experience behind me, I look at the cycles a little more philosophically and see them more distinctly. I'm writing this while enjoying a morning cup of coffee in the sunshine, listening to a blackbird. Suddenly, the biting cold that made itself felt just a week ago has been replaced with a fantastic sense of summer, and it seems incomprehensible that I was just recently scraping early-morning frost from the windscreen of my car. I've dug out the year's least useful garment, my summer coat, only to quickly put it away again as completely redundant and, for course, dirty despite being dry cleaned a week ago.
When you're caught up in life, and busy with work and children who need to be dropped and picked up from all sorts of activities, everything passes quickly. Unless you literally stop and think about what is happening, you can be caught out by the changes, or even entirely miss out on an important season. Spring.
I had the privilege this week to listen to a talented equity strategist, also with plenty of experience behind him, talking a little more philosophically about global economic development and the "cycles" we have got used to seeing in the market. Economic downturns, followed by upturns, leading to highs and lows in both the equity markets and interest rates. This is how we have learnt that things appear, and it is through these spectacles that that we express ourselves and choose to act. We are constantly trying to decide where we are in the "cycle", whether there is a recovery or a slowdown, and whether interest rates should be raised or lowered to support the desired direction for growth and inflation.
But one of the images highlighted was a more long-term picture, showing changes in real interest rates (i.e. the interest we receive on our savings after inflation) over a longer period. More precisely, over the past 30 years or so, during which time mini skis and softball have been replaced with iPads filled with Minecraft and YouTube videos, and football is played on FIFA 16 instead of in a beaten-up schoolyard with torn nets in the overly small goals.
What is striking in this perspective is not that the cycles initially generate a clear periodic wave pattern that becomes increasingly less pronounced over time, but the trend. That with each such cycle the level of interest rates shows lower peaks and deeper troughs, and that the cycles themselves are not nearly as distinct. We may, perhaps, be looking for patterns that are no longer self-evident. We may believe that they are there simply because they were once clear, and created a somewhat more predictable future. At least it felt that way.
Much of what is now happening in the world economy is new. Never before have news and financial transactions travelled at light-speed across the globe. Never before have so many people been constantly connected and able to respond to, or act on, financial information. Many phenomena are global, and we are seeing an aging population and an increased need for saving while interest rates are extremely low worldwide. I think it can be useful to take a step back sometimes. To reflect a little more philosophically about developments, and not always assume that everything behaves as it did before.
I believe it is important not to get stuck in old patterns and ideas. To constantly be responsive to developments and to adapt our actions to what is actually happening. At Catella we strive to be responsive to change. To constantly challenge the way we work and to think about how we can do things a little better. To attempt to draw conclusions about how current economic developments affect our ability, and the ability of others, to generate returns. And to develop and strengthen our organisation with individuals who can bring new ways of thinking and contribute new ideas.
With an ambition to always be an asset. For our clients. For you. So that you can focus on enjoying the spring.
Warm spring greetings,
Erik Kjellgren
