The new nature of risk and return
. Losses for lenders insured by the U.S. Federal Deposit Insurance Corporation ballooned from $8-billion in 2021 to more than $620-billion at the end of 2022, illustrating the scale of the problem.
High-growth technology stocks, where predicted cash flows are far out in the future, are highly impacted by increasing discount rates. And, of course, borrowing is more expensive, with many future cash-flow assumptions insufficiently accounting for higher interest rates. But inflation and subsequent rate rises are only one factor contributing to the uncertain investment environment. It has been driven equally by the overwhelming and concerning rise of geopolitical instability. With the war in Ukraine and rising U.S.-China tensions, the broader context and impact of global politics has become crucial for global investors to comprehend.
Investors will always be required to respond to unpredictable global events, but pro-actively identifying the trend lines can produce enormous value. While investors fancy themselves as masters of both the microeconomic and macroeconomic, recent worldwide shock waves have underscored the multitude of things out of their control.
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