We’re now well into the second half of 2025 with stocks, home prices and

Bitcoin at all-time highs. You’d think times like this would be good and central bankers would pump the brakes because things might be going so well.

But here’s the thing. National debt is also at an all-time high. In the United States, it has hit US$37.1 trillion and inflation on both sides of the border is likely accelerating. Despite this, commentators are calling for cuts to

interest rates later this year, the loudest among them, the president, who would have us believe we are overdue for multiple cuts. This is the same person who simply “shoots the messenger” and fires public officials who issue reports that don’t fit his narrative. In this context, there’s very little that can be believed regarding economic data coming from the White House.

There is a symbiotic relationship between what politicians want for voters and what financial advisors tell their clients to expect. Politicians and financial advisors both benefit from people having an optimistic outlook. Even though markets don’t move in a straight line, both tell people to take a long-term view, stay the course and maintain discipline. Some politicians would go so far as to manufacture information to make the rose coloured glasses fit.

Politicians and central bankers typically do everything in their power to keep the economy from experiencing a prolonged downturn. Artificially propping up the economy when things are doing well and accentuating the positive is what I call “bullshift.” Both governing politicians and financial advisors want people to feel bullish — and shift their narrative accordingly.

Put another way, the financial services industry shifts your attention to make you feel bullish, and politicians and central bankers self-servingly play along. It seems people (who are both investors and voters) are often coddled with a false sense of security. Because things have been seemingly favourable so long, I wonder how much resilience people will show when the going gets rough.

Recency bias is a factor here. That’s when you think the recent past can be expected to persist in the near-term future. Here are two examples.

The first involves forgetting things that happened because it was too long ago.

Inflation spiralled out of control in the late 1970s with central banks employing draconian measures to raise rates to unheard-of levels. For the next 41 years, until early 2022, interest rates dropped consistently — all the way down to zero. That’s a multi- generational bull market in bonds caused by money getting cheaper because of inflation becoming increasingly benign. But those days are over, and there is a strong consensus that deglobalization will keep inflation higher than what we’ve been accustomed to. This also means economic growth will be lower than what we’ve been accustomed to as we rebuild new supply chains with our geopolitical allies.

The second example of recency bias is the COVID-19 epidemic. People still vividly remember being sent home in March of 2020 and how harrowing it was when stock markets lost one-third of their value over five weeks. Once again, politicians and central bankers used monetary and fiscal policy to keep things moving along. The strategy succeeded because it averted a public health crisis and an economic crisis. Indeed, things would have been far more severe if such action not been taken. But investors may have now grown complacent. As politicians and central bankers staved off what might have been a catastrophe, investors began to feel invincible.

It looks like we’re headed for a bout of stagflation , which is what happens when you have a stagnant economy and an inflationary environment. Prior to the 1970s, those two situations were seen as mutually exclusive. We now know they are not, and that the circumstances of 50 years ago required draconian rate hikes to regain control. But it seems history may be repeating itself. Since inflation is still not clearly under control, it may be difficult for central banks to cut rates, and if rates stay where they are, most economies in the Western world will likely slide into

recession soon. The world has changed, but too many people still fail to recognize it. What’s even worse is that many think our politicians and central bankers will bail us out of future economic challenges. The problem seems clear. Policies that worked a few years ago cannot be attempted now without serious repercussions.

No one knows what the future holds, but we might be heading for a prolonged bought of stagflation while economic growth remains non-existent. Raising rates would shrink the economy, but lowering them could cause inflation to spiral upward. Splitting the difference and keeping interest rates where they are now is like Chinese water torture; it’s hard to get ahead when the economy isn’t growing and things are becoming more expensive.

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What to do? Given the high valuations of financial assets, people should consider taking some profits and redeploying their proceeds into other hard assets — things like infrastructure, gold and resources. Such options will likely do well in a low-growth environment where we must build things on our own rather than import them from elsewhere. I suggest allocating a portion of your portfolio toward hard assets as a hedge against inflation while financial assets are, at least for the moment, still riding high.

John De Goey is a portfolio manager with Designed Securities