13 Aug 2011, 9:31pm
economy reflections shares
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  • The Market’s been like the Grand old Duke of York’s men this week

    What a rough old week it’s been on the markets. Share prices just like the Duke’s men, when they were up they were up, when they were down they were down. Barmy. You couldn’t make head or tail of it, other than that people were having the bejeesus scared out of them as the mood swayed from total panic to near euphoria.

    There have been days where nearly everything has been a sea of red on my screen, and today everything is on the up. I took the opportunity to hop in and buy TSCO, AV. and BA., which diversify me into two sectors I haven’t been in before. I’ve now only got about £3k space left in my ISA. Going forwards I’ve got space for about five more shares and then I have to follow SG in buying more of what I have got already.

    Now obviously there are a lot of people that are nervous. What are their fears? And what makes me so different to them…

    I share many of the fears. The slowdown in the West will probably turn to depression – we have used all our ammunition up fighting the banking crisis and there’s not much more left. All the tightening of government, corporate and household budgets will result in too much money chasing too little economic activity. We’re guaranteed a big hunk of inflation to craftily lose some of the wealth, and I expect in real terms the net worth represented in my shareholdings to fall, even if the nominal value stays the same. There’s a precedent for this – the FTSE100 in the last ten years hasn’t been a barnstorming success like it had been the previous decade.

    I’m not sure I am looking for the same as other investors. This isn’t about winning or getting ahead to me. It is about attempting to lose less. The value of the currency is being destroyed, in an attempt to devalue existing commitments, and also to cover up the fact that in Britain and the West in general we have become decadent and lazy. In itself that wouldn’t be a problem. However, it means that we can’t afford the standard of living we are used to and have expectations of, because we can’t be arsed to put in the work, as a nation.

    That’s shown analytically by Tullet Prebon’s Project Armageddon report (hat tip to Monevator for this gem). The strapline ‘thinking the unthinkable; might there be no way out for Britain’ sums the prognosis up pretty well. A larger and larger section of British citizens are content to live off the wealth created by fewer people. Author Tim Morgan is rabidly right-wing (to the extent he makes me look like a bleeding-heart liberal!) but it’s hard to disagree with his stark summary of the issues Britain faces, and the issue is one of attitude and habits, which are hard to change, possibly taking generations.

    the gravest problem – the concept of entitlement

    Despite the appalling mismanagement of the New Labour years, Britain remains the world’s eighth largest economy (though it has now fallen to 37th in terms of per-capita income).

    Reflecting this, British citizens enjoy high quality health, education and welfare systems, combined with strong provision of other basic services.

    The problem which has emerged over the last decade, and can in large part be traced to Labour’s doctrine of moral absolutism, is the widespread assumption that individuals and, by extension, Britain as a whole, have an entitlement to these advantages, when the reality, of course, is that they have to be earned on an ongoing basis.

    It’s why we have to hire non-Britons to pick the fruit and veg in the fields of our green and pleasant land, and a little bit of this attitude is why we have had rioting in London’s streets for the right to have the right sort of footwear and a flat-screen TV, while elsewhere in the world people have been rioting to get rid of autocratic leaders. People sense the austerity to come, and try and hold on to what they have by any means possible. For the rich that means the numbered Swiss bank account and tax evasion on a grand scale, for the middle classes that means the skewing of government policy to try and keep house prices up and to hang on to their child benefit, for the working classes it means the cash in hand jobs, and for the kids it means a chance to nab a free TV and get some excitement at the same time. As the man from Tullet Prebon summed up, we got here via

    Worse still, the legacy of moral absolutism and entitlement has created a political landscape of warring interest groups which gravely compromises Britain’s ability to find unified solutions to its problems.

    The debasement of the currency will gradually make imports dearer and Britons poorer, to accommodate our reduced productivity, and governments will hope the change is gradual enough that people won’t pin it on them. Some of this malaise applies to the rest of the developed world, which of course hammers our chances of exporting our way out of this.

    I am well into the last third of my working life. I have earned most of the money I will have, so the focus for me is to lose as little of it as possible. These macroeconomic problems will destroy some or perhaps much of my wealth, and is why I have diversified into non-financial assets and tried to screw down my cost base as much as I could.

    The problems I fear are the large scale macro issues – peak oil and the like. The Tullet Prebon report was interesting, because I had not seen the scale of the nearer term malaise in Britain. My social circle is from a narrow section of society. I don’t personally know anybody who is unemployed. I know people who to me look underemployed, but they do this as an elective lifestyle choice to have more time, which is different. They are doing this at the early part of their careers in a similar way to my search for a way to be able to retire early at the end of my working life.

    I will probably never be able to use the benefit system, because as long as the stock market doesn’t fall to 20% of its value my net worth will be over the  capital assets threshold for getting JSA. I am happy enough with this, I don’t particularly expect other people to fund my lifestyle. However, it does somewhat hack me off that the general indolence will trash money as a store of value.

    Equities are diversification for me – my non-financial assets are to hedge the downside, but equities are there to hedge this sort of world-view. I don’t share the view, but I can’t say it’s impossible that we might find leadership that will stiffen the British spine, and as a nation we pull the nose up before the ‘whatever’ crowd puts the economy in a tailspin.

    So I share the fears that made the stock market dive. But since this part of my assets is there to hedge the rosy world-view then it is only logical to get in there and buy. So I did. I’m getting close to my ISA limit and will soon have to consider either converting my cash ISA or possibly venturing outside ISA territory with more growth-oriented stocks. Either way it would be rude to ignore the opportunity to pay less for more, which acknowledging that Mr Market may well be feeling in a much sicker mood and the harbingers of Depression start to become clearer. Which is why I haven’t loosed all my firepower at the market yet. I don’t know whether the Grand old Duke of York’s men are up at the top or down at the bottom of the hill at the moment 😉

     
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