(John here – don’t forget to grab your ticket for our virtual Wealth Summit in November. Things are rather heating up in markets, as Dominic discusses below, so you couldn’t pick a better time to be in a room with a group of the world’s smartest financial experts covering all the topics that matter most – find out more here.)
It feels like the 1970s all over again: energy shortages, inflation – and I mean visible inflation in everyday goods, not just in house prices – supply chain issues, rising bond yields, volatile markets, social discontent...
We lowly investors peek out from our bunkers and observe that pretty much every problem is the making of some short-sighted policy up top, from money printing to a failure to process HGV licences.
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But we also note that there is little we can do, beyond ranting at the neighbours. All we have is the ability to put our own houses in order.
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So we go back under cover and take stock.
What can you own when everything is expensive?
How to navigate what is becoming an increasingly difficult investment landscape?
Gold. You’ve got to own some, but it’s gone down again. It was supposed to protect against money printing, but it hasn’t. Not for ten years, apart from a brief surge in 2020.
It’s the ultimate analogue asset in a world where all the value is digital. But you never know. You’ve got to have some.
Bitcoin. You’ve got to own some; its potential is too great not to. But it’s going down. And at current prices it’s hardly the value proposition it once was.
Tech. That’s where the growth is; the scalability of digital is something to behold. You’ve got to have some tech in your portfolio. But we say it again: at current prices?
In the correction of the last week, tech stocks sold off by a lot more than other sectors. It looks relatively weak. And what about the semiconductor shortage? That’s not going to help. Is it?
Bonds? Don’t understand them. It looks like a racket to me. Yields are too low. Only invest in rackets you understand.
The base rate is 0.1%. Inflation is 4.8%. They say it’s only transitory. But how do they know? I can even hear the “brrr” of the money printer from inside my bunker, and it’s insulated. Doesn’t a shortage of HGV drivers and panic fuel buying signal higher prices? I think they’re just saying it’s transitory so they don’t have to put rates up.
But the negative real yield is closing in on 5%. That’s quite something. As Charlie Morris of Fleet Street Letter fame observes, inflation expectations are currently at 4.5% over the next two years. I’m not sure it’s as transitory as they say it is.
No wonder bond yields, even in this racket of a market, are spiking.
Base metals. It strikes me that base metal prices are largely driven by Chinese demand. The real estate company Evergrande is bust. People are posting videos on social media of the Chinese knocking down buildings they recently built that nobody’s using.
There are 30 million unused homes, I read. Can you ship some of them over here? The under-40s sure could use them.
I’m not so sure about Chinese construction demand for the moment. There’s definitely a structural deficit in base metals – too many years of underinvestment in mining. But the sector’s not in what you’d call a bull market.
Energy? It looks good, you have to say it. A bull market is a bull market and oil is in a bull market. It’s up 55% this year. Oil had a great decade in the 1970s. It beat pretty much everything. We are oil bulls. Have been for a long time.
Brent touched $80 this week. It has pulled back a little. But there is still room for it to go a lot higher. Ten years ago $100 was kind of normal – it will be again.
But there is a lot of noise about the oil price. We don’t like it when things get noisy; it worries us. It means the bull market’s nearer the end than the beginning.
Uranium too has been good. Many of the miners have just had a 25% correction this past fortnight. Time to jump in? Not sure. Still feels too noisy. Long term yes, but short term it worries me. Maybe that’s the proverbial bull market wall of worry.
Maybe boring old UK value stocks are the place to be. Could do a lot worse. Though they are not exactly sexy.
Which leaves cash. At least you know where you are with cash. You know it’s going to lose 5%-10% of its purchasing power over the next year.
It’s no longer a safe-haven; it has become like a time-dated option. But when everything else feels so shaky, a mere 5%-10% loss seems like a relative win.
Too much money is sloshing about looking for stuff that’s cheap. And nothing is cheap, because there’s too much money sloshing about.
I was a wee nipper in the 1970s. I don’t really remember it, but my old man used to say how hard it was. You knew you had to put your money somewhere, but it was impossible to know where.
Sounds like today.
Daylight Robbery – How Tax Shaped The Past And Will Change The Future is now out in paperback at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere.
