John Townsend’s investment opinions October 2026

We are living in interesting times. A phrase first attributed to a British politician Sir Austen Chamberlain and now being used to describe the confused and confusing actions of politicians on the other side of the pond in the USA, led by an angry old man who combines shouting at the clouds with calling other people names.

There is an economic and financial crash brewing in the USA, the utter political chaos and directionless policies combined with the rise of AI and Semiconductor stocks and the long-term weakening of the US Dollar, have been so extreme that they border on the inexplicable.

The bandwagon effect and perfidious policies have meant that investors have been guiled into borrowing money to leverage holdings in companies and indices such as the MSCI world without understanding that when the markets inevitably fall, the banks will want all their money back together with all due interest. The retail investor, having been enticed by the fear of missing out, will once again be left to carry the heavy losses without a bailout.

We have seen these markets before, for instance in the Black Monday crash of 1987, the Dotcom bubble of 2000, the Global Financial Crisis of 2008 and the cryptocurrency collapses of 2022 and late 2025 / early 2026. To compound the problem, the US government has raised the National Debt to US$ 40.44 trillion (the US Debt Clock at the beginning of October 2026), which has caused the 10-year US Treasury bond yield to rise to over 5.28% (at time of writing).

Just to be clear, bond yields are a function of market price; if investors are selling their bonds or are simply not buying enough of them, the prices will fall until a level is reached to a point where investors are willing to buy again. The major investors in US Treasuries are Japan, followed by the United Kingdom. China used to be the main holder of this paper but began a major selling program and halved its holdings in order, it is said, to stabilise the Chinese currency, the Yuan. Purchases have not resumed since. Funds investing in bonds are valued at the price of the paper they hold, not the yield. As bond prices fall, so will the Net Asset Value of many bond funds. These funds almost never expect to hold the bonds to maturity.

At the same time, highly rated US corporations are also tapping investors in the bond markets, at yields slightly higher than the US Treasuries, in competition with the US government at the same credit standing. They are also issuing stocks. The bond and stock markets in the USA are closely correlated and the supply of investment money, that has not been borrowed from the banks, is running low.

We have recently seen a major Initial Public Offering from SpaceX raise nearly US$ 86 Billion from enthusiastic investors both retail and institutional, and there are other major IPOs due shortly trying to tap this demand, by raising up to US$ 100 Billion at a time. Many of these investments will once again come from the small and probably leveraged retail sector, again because of their fear of missing out, and their pension funds.

Present market prices are closely echoing the movements of preceding past market crashes.

I am therefore strongly advising my clients to sharply reduce or eliminate their exposure to the technology stocks, the large US Corporations and indeed to the US Dollar. There are of course some first-rate American smaller companies in which it will undoubtedly be worth investing in once the currency value and the stock markets have stabilised.

The forthcoming crisis raises the question, where investors should invest their (unborrowed) money. There will necessarily be some correlation between the movements in the US Markets and the US Dollar and the rest of the world. However, despite the self-deprecating calls from German commentators, Germany still has some excellent companies in which to invest. There are also some other attractive and well managed European companies, which are in the scope of the better fund managers and their analysts.

Emerging market governments and companies are also performing well and have been very profitable in the past. Many funds have tranches issued in local currencies as well as in US Dollars. The currency risks are normally translated into Euros by the fund managers, and it is worth checking that this foreign exchange risk is hedged when conducting pre-investment due diligence. Experienced fund managers will do this as a matter of course.