Three investment giants scattered some warnings that every investor should know

“The forecast is very uncertain,” warned Norwegian banker Nicolai Tangen, who heads the fund, which partially owns 7,200 companies in more than 60 countries with an estimated value of $2.2 trillion. “It’s a good time to be an index fund… I’d rather be invested in the entire market at this point, than to try and choose specific stocks for investment,” he added.

Tangan clarified that the markets are currently suffering from high uncertainty, with contradictory and unclear effects of the current energy crisis on the one hand and the AI ​​revolution on the other, alongside changing geopolitical conditions. Therefore, the strategy of the fund, which owns about 1.5% of all the shares traded in the world, can prove itself more than a “bet” on certain fields and companies.

In other words, the person who manages one of the largest investment funds in the world made it clear that the ability to generate excess returns through specific stock selections is now small, and therefore the existing strategy of broad diversification in indices to minimize risks in specific markets is preferred.

The war with Iran as a double-edged sword

The annual convention initiated by the Wealth Fund is the fourth to take place, in an attempt to increase its exposure on the international stage and shape the agenda. The fund was established in the 1990s with the aim of securing the financial future of the people of Norway based on the Scandinavian country’s enormous oil and gas revenues. Since then, it has become a model for national wealth funds, from the Gulf to Israel, with an investment strategy that includes diversification across bonds, stocks, real estate and, more recently, green energy projects.

Last year, with the rise of global markets, the fund recorded a profit of 250 billion dollars (15% return). This year its performance was affected by the decline that occurred in global markets after the outbreak of the war in Iran, which was offset in recent weeks with renewed increases.

In the Israeli context, the fund caused an uproar when, under public pressure, it liquidated more than 50% of its portfolio in Israel, including financial institutions, communication companies and infrastructure, on various moral grounds, either for involvement in the war in Gaza or due to business activity beyond the Green Line. After this step, the fund unexpectedly announced that it would “reexamine” the moral criteria for its investments, among other things in an attempt to avoid American sanctions or penalties for this policy.

The fund owns 30 companies worth two billion dollars in Israel, according to its latest report. Pro-Palestinian activists tried to blow up the annual investment gathering and tried to chain themselves to the doors of the hall where the event took place. The police evacuated them.

The war in Iran has boosted oil and natural gas prices in the past two months, and will likely be responsible for the Norwegian wealth fund’s increased revenues from that angle, but in terms of its investment strategy, it poses a threat, Tangen said.

“The companies that have already submitted this year’s reports, a large number of them convey uncertainty regarding the (business) forecast, mainly because of what is happening in the Middle East,” added the Norwegian banker. According to him, “at this stage we see more influence in Asia… but we expect it to move to Europe and eventually to the US as well and may lead to price increases.”

“I would not rule out a stagflation scenario”

The fearful tone was joined by the CEO of JP Morgan, Jamie Dimon, who said at the conference that one of the scenarios he fears most is stagflation (a combination of economic slowdown and high inflation) as a direct result of the war in Iran. According to him, the rise in energy prices can become “sticky” inflation, which together with market conditions will create an economic environment of zero growth, high interest rates and even rising unemployment, without that the central banks can change the picture.

“The worst-case scenario is stagflation, and I wouldn’t rule it out right now,” Damon said in Oslo. “There is a lot of inflationary pressure now, including the war in Iran, the armament of the world, infrastructure needs and deficits.” The main reason for this is energy prices, which affect the entire price index and push the central banks to maintain higher interest rates over time.

Last month, inflation in the US climbed to a rate of 3.3% as a result of rising energy costs, with the Federal Bank’s target of 2% at most. But over 60 months have passed since it was there.

In relation to deficits, Damon said in Oslo about the risk of a global debt crisis, that he definitely sees a possible scenario of a bond crisis. “The way things are going now, there will be a certain type of bond crisis, and we will have to deal with it,” said the CEO of JP Morgan, who heads the world’s largest bank in terms of market capitalization.

He said that the timing may not be known, but the combination of risk factors is becoming more explosive by the day. “The amount of things being added to the risk column is increasing, and they include geopolitics, oil and government deficits,” Damon warned. “It is possible that they will disappear, but it is also possible that they will not, and we do not know exactly what combination of events creates a problem.”

The American deficit is breaking records and is expected to amount to 2.7 trillion dollars by 2035. In Europe, too, governments are deepening the debt in an attempt to deal with the need to arm themselves, invest in infrastructure and also to mitigate the effects of the energy crisis on their economies.

Damon said that the two biggest risks in his opinion now are cyber attacks and the geopolitical situation. “The wars in Ukraine and Iran, the strength of NATO, working with our partners to keep the Western world united” – these are what he says should be a priority.

Damon also mentioned the fear of a failure in the bond market in his annual letter to investors that he published recently. Then, the CEO of the largest bank in the USA warned against the compensation that investors demand for the risk in long-term bonds as a result of the growing government debts and inflation.

“Hundreds of billions of dollars were sacrificed”

Another possible crisis that came up at the gathering is that of private credit, especially in the American market. This field grew to a value of 3.5 trillion dollars, according to the latest data, mainly due to regulation that made the loan options of banks worse. In focus: Financial giants such as Blackrock and Blackstone stopped withdrawals at least temporarily from certain funds after an increase in the demand for redemptions.

While Damon said at the conference that in his opinion it is not a large enough share to pose a threat to the stability of the American financial system, another speaker at the conference, Citadel founder Ken Griffin, said that he is afraid of this market. In recent weeks, several investment funds have partially suspended the ability to redeem their investments. Griffin, one of the richest people in the world with an estimated fortune of $50 billion, said he fears that the “new” investors attracted to these funds do not internalize the illiquidity of their investments.

“We live in a world where retail investors (private investors operating in the capital market independently, often through trading platforms in banks or investment houses, etc.) have become accustomed to receiving full liquidity for their investments… but investments in private credit are a different story,” Griffin told the Financial Times.

According to him, there are “hundreds of billions of dollars” invested in funds such as Apollo, Blackstone and KKR where investors “sacrificed” liquidity in exchange for a return. “The story is the lack of liquidity between the retail investors and the duration of the investment.” The fear in the markets is a credit crisis that will be caused by this.