What happened in the markets in January 2019?

Welcome to our newest column, with which we are expanding the content related to the Virtual Pension Fund and our Pension Reform for the Young. Within the new column "Market Commentary", the editor-in-chief of EKIP Georgi Vuldjev, who is also the chairman of the board of our modest Virtual Pension Fund, will provide short monthly comments on current developments in the financial markets. The focus of this column will be specifically those events that have a direct impact on the return on investments simulated within the Virtual Fund. As part of our campaign for pension reform, this column will be sent directly to the mailboxes of those registered in our Virtual Pension Fund every month!

Enjoy and (hopefully) useful reading!

December was a tough month for markets. The S&P 500 index (which tracks the 500 largest companies in the US) fell by around 10% and the German DAX by around 8%. But in January, this trend reversed - the S&P 500 rose by 8% and the DAX by 6%. As a result, stocks performed much better and this was reflected in a noticeably improved return for pension funds. The average return for universal pension funds rose to 1.1% (after being negative in December), which is the highest level of monthly return they have reported since we launched our Virtual Pension Fund.

However, our "own" investment portfolio, for which we copy the model of the so-called "Permanent Portfolio" of Harry Brown, continued to perform better (and by several percentage points). Overall, all assets composing the portfolio reported growth in January and this increased its overall yield to 3.0%. You can see the exact figures in the monthly reporting email that we send to all those who signed up for our Virtual Pension Fund. The better performance of Harry Brown's portfolio in January is due to gold, which continued to generate higher returns than debt instruments (such as government and corporate bonds), although its yield has weakened compared to December. This is another example of the usefulness of precious metals as a tool for additional and improved diversification within even conservative investment portfolios.

Last (and unfortunately last in terms of yield) comes Bitcoin, our purposefully speculative or "show" investment. The price of Bitcoin continued to fall in January, and at a faster rate (-10.9%) than in December, but the decline recorded during the month was not particularly significant, in the range of a few hundred dollars. However, we may already be seeing some comparative stabilization in the price of Bitcoin between $3,000 and $4,000 per coin.

Overall, January was a noticeably better month than December for traditional investments and unfortunately not so good for innovative alternatives like Bitcoin. It is difficult to predict what will happen later in the year, and short-term forecasting of market movements is always complete astrology. So I will not fool you that I know where the markets will go in February. However, the macroeconomic situation, specifically in Europe, has been on a clearly negative trajectory for several months now. This is mainly due to the serious decline reported in German industrial production at the end of last year. If this trend does not reverse, Europe will most likely enter a recession this year, which will have a corresponding negative impact on the profitability of European company shares.

The US president's trade policy is a key risk factor in this regard. If Trump decides to impose higher tariffs on European car imports, this will put Europe into recession tomorrow. The economic situation in the US is noticeably more positive, but, as we saw in 2018, volatility in the markets there has returned in full force. Perhaps in response to this, the Federal Reserve (the US central bank) announced that in 2019 it will be "more careful" with raising interest rates and will generally wait longer. That is, this year we will most likely see fewer interest rate hikes in the US, in order to avoid putting the US economy into recession due to the unbearably rapid increase in the cost of credit. It remains to be seen whether this will work as the Fed hopes. In my opinion - unlikely.

If you don't know yet, but would like to find out what kind of return your savings could achieve if they weren't being poured into the empty vat of the Pension Fund every month, you can register for our Virtual Pension Fund here . A detailed description of the idea and functioning of this experiment of ours can be found here.

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