Things are expensive, but we are not yet in a full “everything bubble”
When people are paying $650,000 for an imaginary yacht, you might think asset price inflation has got completely out of control. But there are still pockets of value left, says Merryn Somerset Webb.
Last week someone paid $650,000 for a pretty ugly imaginary yacht in the metaverse. I don’t propose to explain this much further (you’ll get a better explanation on Google, I suspect) but the key point is that we live in a world where people pay real money for not-real yachts. This is silly. It’s also symptomatic of the extremes you get in a world in which too much money is chasing too few goods – an inflationary world.
Not everything has gone up by quite as much (I think we can safely say that not too many years ago, imaginary yachts were worth $0). But nonetheless, knowing that US consumer price inflation is now 6.8% a year and the UK’s has just hit 5.1% is a not-comfortable feeling. They are the kind of numbers that make it increasingly hard to argue (though central bankers will have a go) that having kept interest rates at multi-thousand-year lows for over a decade isn’t having some very unpleasant side effects.
There’s asset price inflation in general. Real yachts are hitting record prices, too, and last week Stanley Gibbons sold £1m-worth of fractional shares in a stamp – a stamp those “owners” will never actually get to have or hold. There’s the huge amount of money in private equity. There’s the mad meme-stock stories (less fun than they used to be) and, of course, there are house prices. In the UK, house prices rose another 10.2% in October (according to the Office for National Statistics) and, in a worrying development, the Bank of England is talking about withdrawing affordability rules to make it easier for buyers to overstretch themselves.
Should you worry? Of course. When everything is fragile, policy mistakes are easy – from governments (virus panic, hospitality close down, etc) and from central banks (raising interest rates is a nightmare when half the economy is barely able to operate; not raising them is to lose credibility for ever). And when assets are expensive, policy mistakes really matter.
That said, while prices in the metaverse might suggest otherwise, the world is not in a full “everything bubble”. In this week's magazine you will find ideas from our writers on all sorts of not-very-expensive-at-all investments. There are large listed miners, a gold miner, oil and gas assets and, for good measure, a carbon price tracker, too. Then there are emerging markets – after a pretty good 2020, all too many have had a 2021 investors would rather forget. Only Cris has been brave enough to tip an Asia-listed company, but the price of that one (a price/earnings ratio of 13 and a yield of over 3%) should be a reminder that even today you don’t have to buy expensive equities. We have more ideas on this in this week's magazine – where the managers of the MIGO Opportunities Trust suggest a few investment trusts trading at silly-sounding discounts to net asset value.
On the subject of cheap – or reasonable value at least – Max looks at some smaller US company trusts. There may or may not be a bubble in the US (remember that the big US companies are still seeing fabulous earnings momentum) but there are bits of the small cap market that look almost reasonable. Finally, much of this is difficult – and none of it comes without risk (with inflation this high, there are no risk-free assets left). With that in mind, we also have tips on tracking down old pensions. Finding money you already have is always going to be easier than making more.