1 Oct 2010, 11:35am
economy
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  • Best September for 71 years for the Dow – but is it real?

    The Torygraph reports that the US stock market had its best September for 71 years. We haven’t been doing so badly round here, either. Everything is hunky-dory, the good guys won and the bad guys lost.

    Doesn’t feel that way, though. The trouble is that everything is going up. I don’t know what is being used to qualify inflation in Britain but it’s wrong for my experience. I wanted to by a PL259 radio plug recently. It was over £2; that’s a shocking price for what is essentially a passive component, indeed electronic parts in general seem to have increased very notably over tha last year. Everything imported into the UK seems to be creeping up, and not just by 5% a year, either.

    The problem is we needed a lot of money to pay off the screw-up with the banks. So we printed it. The results are showing up in all sorts of places. I am trying to save money and give it to my future self, which is not what the Government wants me to do. Well they can stick it, though obviously I have to eat the hit of their active discouragement.

    I don’t trust the currency as a store of value. So I buy shares, ETFs, physical stuff I expect to need over the next few years as long as it doesn’t decay/is subject to rapid technical obsolescence. I use it to build a business I expect to get an income from after I stop working.

    Anything, as long as it isn’t increasingly worthless UK currency. I’m not the only one, and this wall of money going into assets is pushing up stock prices, probably way beyond what should be supported by fundamentals.

    Gold ETF - top line, against FTSE100

    Gold ETF - top line, against FTSE100

    The problem is that our reference point is being debased. What value is it that the stock market is going up when the units it is cited in is going down. What we need is an independent arbiter of value. I’ve disingenously used gold for that, and though gold does act as an independent standard it would need to be smoothed price-wise over several years, and we don’t yet have the future data to do that 🙂 Perhaps some broad basket of commodities would be better, anything expect financial instruments, for if we are trying to gauge the quality of a financial instrument that is acting as a store of value then we need to measure it against something, like stuff, that can’t be produced on demand at the flick of a mouse.

    My ISA is telling me that it is over 8% up. It is bulling me, because the value of what I can buy with its liquidated value is at least 5% less this year than last, and the inflation I am experiencing feels like more that 5% – I may not buy that many gewgaws but I do buy gas, electricity, some petrol and all of these look to be going up.

    That ISA is still better than my Cash ISA at 3.2%, I am resigned to seeing the stored part of my capital slowly dying. The only reason it is increasing overall is that I am shovelling more in by saving than is being destroyed by the likes of Mervyn King and his bunch of merry Quantitative Easers. If I had jumped to this earlier I would have piled into the Swissie as soon as the last lot of QE was announced, but unfortunately I didn’t get in quick enough. There’s still some case to be made to do it to head off the next lot of QE but Switzerland is a small country even though finance is big there, and it appears the whole world is after a safe haven so it could explode at some point. So I haven’t got the balls. Shame about the Euro, I could be sorely tempted by Deutschmarks if they still existed, but I don’t want to carry the load of the prodigal PIGS 🙂

    How many Swissies to the Pound

    How many Swissies to the Pound

    I’m not as handy as RetirementInvestmentToday with munging data, but to me if you spin the CHF graph on its head it doesn’t look so dissimilar to the gold picture, and seems to be telling us the same story. Our money is dying, and most of the rise in the stock market is not because our companies are back on their feet and raking it in but because the FTSE points are getting smaller with the £ so their number has to rise to compensate.

    There is a school of thought that Britain is quietly booming now. The stock market rise would seem to support that. I am not convinced, however – the apparent increase in the FTSE (and the Dow, since the US has been carrying on in the same way) is very largely an artifact of the deliberate devaluation of the currency. All boats ride higher when the tide goes out, but they’re not going anywhere fast.

    Looking to the future, I will look to a combination of ETFs in resource rich economies like Canada and Australia with some emerging market ETFs, though I don’t trust some emerging market governments either. Brazil has served me ok, but this sort of sabre-rattling could shaft that good and proper. I want as little exposure to Mervyn King and his destructive policies as I can get. They are fantastic for Britain’s indebted homeowners and credit card debtors. I didn’t have all the foreign holidays, huge houses and overextended lifestyles that they had while pumping up that debt, so I don’t see why I should want to be part of bailing them out now. Just in case Britain is really booming again, however, I will add to my UK IT portfolio.  I want income from UK investments and ETFs don’t really work well for me here. Diversification works for me, because I’m not a talented seer like Warren Buffett 🙂

     
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