Earning a living is hard enough. Saddled with debt and a stupid degree, plus precious little experience, finding paid work is tricky. Then holding down a job, making ends meet, and having a little bit of fun along the way isn’t easy. No wonder so many of us are raddled by anxiety and armies are marching on anti-depressants.
Then, things, hopefully, look up a little. Times a bit better and, being prudent, we save the pennies when we can. Stash away and sooner than you’d think, these build into something labelled an ‘investment’; good, you’re on your way. Trouble is, the slog doesn’t end there. Now it’s time to seriously question the advice you are being given or else, as the old saw says, ‘a fool and his money are easily parted’.
Who, and which institutions (note the plural), to turn to in these very uncertain times? Trust no one, especially not your government – the perennial borrower whose modus operandi is faith and taxation. Take the time to learn – properly – about money, investments and financial goals. Don’t stick to your stockbroker, wealth manager, or basic banker – all are versions of the snake oil salesman.
First and foremost set out, in writing, what your savings’ goals are. Counting it regularly is unproductive; taking it with you when you’re off isn’t an option; and while an aesthete’s life might suit a few, I’d rather enjoy my dosh a little at a time. So: cash as a safety blanket, staggered fixed-term investments for an income stream, small speculative bids here and there to spice up life (alternatives come in handy, from animals to art, watches to wine), and a few bigger punts that might make a serious material difference to one’s lifestyle – like backing individuals, concepts or companies properly.
Today’s horizon is sadly lacking in obvious choices. Most stock market indices look grim, although your faithful broker will label these ‘opportunities’, with the few bullish ones – based on technical analysis – posing so many risks I’m not sure I could face it: Argentina, Brazil, Indonesia, the Philippines and Russia.
At this time last year I suggested the US dollar would weaken by about 10 per cent against currency majors; oh so wrong, and I’m seriously sorry. Instead it has recovered about half of 2017’s losses, and gained considerably against emerging market ones. Not the end of the world, as the US dollar index has held within the broad parameters (90 to 100 on the index) established five years ago. I expect more of this broadly sideways move against major currencies again this year, with a small bias to US dollar weakness because it is currently relatively expensive. As for sterling, it and the euro are both flawed, the former a dreadful store of value since world war one and the latter a concept with warped underpinnings.
On the other hand, my view on interest rates was spot on – again! Regardless of what the Federal Open Market Committee (FOMC) was fiddling around with, key interest rates around the world remain at or close to record lows. After five consecutive years of US Treasury yield curve flattening, some have only just woken up to the fact that the bond market isn’t buying the so-called ‘normalisation’ of the Fed funds target rate. Quelle surprise –because so many simply don’t do the homework. May I remind you that in an even more arrogant way Jean-Claude Trichet announced at his swan song in 2011 that all was well and raised the European Central Bank's (ECB) rate by 50 basis points for the first time since 2008’s crisis; what followed in 2011-12 was an even bigger European Union (EU) banking crisis. Merçi monsieur! He is not alone, the Swedish Riksbank, which oversees one of the most overpriced property markets around, also raised rates in 2010, only to backpedal furiously – as did the Bank of Canada in 2015. Remember, these chaps are not sages or visionaries – so let’s take them down a peg or two. When even bond fund managers are all singing from the same hymn sheet that goes: after a decade of extremely loose money central banks are beginning to remove accommodative policies, beware! I continue to expect low, negligible, or negative interest rates this year – and further out. Borrow wisely if you can, and want to.
Stock markets have had a rough ride this year, starting with China-facing ones in the first half of the year, moving on to to Asian and European ones this summer, and US indices coming to a belated – and therefore more dramatic – fall in Q4 2018. Look through December price action as most of this was caused by thin markets – idiots following the desperate. While recent analysts’ chatter centres around a potential bear market in 2019, the reality is that a Reuters poll of 46 professionals, conducted on 28 December, found that most of them were still bullish for the S&P 500 (though less so than in September) predicting a 2019 year-end price of 2975 versus 3100; basically, the decade-long bull run is to continue for yet another year, and a very bullish call of nearly 20 per cent from 2018’s close at 2500. I say, focus on the asymmetry of gains and losses. Try to decide whether and what exactly has reached ‘peak stuff’, as IKEA’s marketing manager put it so aptly many months ago. My hunch is that all too many indices are still expensive; that equity investors have lost their nerve; and that reduced forecasts will mean a massive loss of turnover for global stock markets. I suggest one prepares for a 30 to 50 per cent correction to the rallies since 2009. Just the sort of prediction my aged dinner companion last week will not believe because, as he said, his money is in UK investment trusts, he has no sleepless nights. Bravado, or jangled nerves in December?
Property, like populism, is a very divisive topic. Millennials moan and baby boomers act smug – both generally unhelpful. The secular trend is the move to urban centres so that today more than half of us live there – for the first time ever. Nevertheless, property hotspots such as central London, Hong Kong, New York, San Francisco, Sydney and Vancouver have seen price reductions this year. Prepare to pounce when the time and location’s right; think laterally. Commercial property is equally split, high street and shopping centres versus offices.
Inflation, caused mainly by a brief spike in energy prices, remains elusive because wage negotiation is dead and buried. Research from the Trades Union Congress states that Britain has suffered the biggest wages slump among developed countries, an average cut of £11,800 since 2008. Lightest off, the north-east, which saw a £4,890 trim, and hardest hit London, off a whopping £20,390 – plus a concomitant increase in housing costs. Ouch! Japan hasn’t met inflation targets in decades. The rest will probably follow.
Low interest rates caused by low inflation is bad for banks – and has been the case for a decade. These institutions have been seriously weakened, and should be treated with extreme caution. Don’t be fooled by official, successful, stress test results; this is collusion between them and their overseers – who know what hell would be let loose if their dirty little secret got out. Many are possible bankrupts masquerading as viable businesses or bankers, from the likes of General Electric, through Italian and Indian banks – my list goes on and on. Jack up interest rates to 5 or 10 per cent and we’ll soon see who’s swimming naked. But do you want to?
Commodities should not be lumped together. Last year I forecast that WTI crude oil, which should today be your benchmark, would spend the year between $45 and $65 most of the time. It did, and the extremely sharp sell-off from $76 a barrel is testament to its total mispricing at that point; it’s likely to move broadly sideways again this year. Specialist and minor metals should remain well bid as new technologies and replacements for fossil fuels continue apace. Demand for precious metals subdued, as was the case last year when the US Mint sold the fewest coins in 11 years. Agricultural foodstuffs will see price fragmentation depending on origin of export as trade wars bite, for example US soybeans rotting in fields while Brazilian ones are spewing into China-bound cargo ships. The price of animal protein, and the feed to fatten the animals, should remain subdued, especially pork. Not that we’re all going vegan, but small incremental lifestyle changes that many will be taking to lighten their carbon footprint, including increased use of public transport and fewer private cars on the road. The wholesale price of natural gas should continue to be volatile, veering randomly between $2 and $5 per million British Thermal Units in North America.
As always, the perennial threat to economic growth and prosperity is confidence. Ask yourself, how keen are you currently to go out and chuck a serious chunk of money at a person, a concept or something you passionately believe in?
