Finding Stability in Uncertain Times: Opportunities Amid Economic Turmoil
5 November 2022
To all Financial Friends
A week is a long time in politics? More like a day is an eternity of constant change.
Politicians, like the oars of a rowing boat, in the water then out again. Prime Ministers in and out. Chancellor of the Exchequers in and out. Home Secretary’s the same, and with the blade of the oar currently twitching uncertainly again.
If you prefer a few minutes discussion with me on Zoom or phone, then let’s do it. Email me back for a time to meet on Zoom right now or call me 07540 582910. If you like to read and mull over things, then do not miss what follows.
Inflation at 10.1%. Bank interest rate increased, just today to 3%. Putin’s war stimulating further inflation and more serious concerns. Economic concerns globally seem to have drowned out effects of climate change and global warming. Temperature of twenty degrees here on 28th October!
Expect 2 years of recession here in the UK we are told. The Bank authorities put forward two possible scenarios for the future. In other words, they just don’t know! Who can blame them?
Is this all-bad news for your money and investments? No! it’s the stock MARKET. There will always be assets in that market that rise whilst others fall. Always? For the first time in my 50 years of market involvement every asset in sight has been falling like the autumn leaves.
Low valuations, as, you find now, are always historically an opportunity to invest and profit. That’s a fact. Let the facts win the battle over feelings. Buy when others are selling is a golden rule quoted by the most successful investors throughout history.
I have remained quiet and calm during this turmoil, content that the defensive position of the preferred portfolio in my commentaries are correctly placed for the best recovery and growth.
Yes, there may be winter ahead but inevitably Spring sunshine will come. Here are glimmers of hope even now. Read on........
Our preferred current asset choices remain firmly in place. Let’s remind ourselves why:
Funds Focused on Infrastructure
Owning shares of companies holding infrastructure contracts makes sense. These contracts are often funded by government, making their income and cashflow certain.
In times of recession, unemployment increases (as is sadly likely). Governments pour money into infrastructure. This creates jobs so people are employed, earning taxable salaries – instead of needing to rely on out of work state benefits.
Today, over the last 12 months, global infrastructure funds, owned by some students, have gained close to 9%. On the day, 3rd November, that bank interest rate rose to 3% and the threat of the worst recession in a century is announced, one of these global funds has risen by 1.5%.
Inflation Linked Bonds
These bonds are where your fund manager lends your money to the UK Government, or other major economies, and sometimes to businesses.
A main feature of these bonds is that the yield (interest rate) is linked to the rate of inflation. So the yield rises as inflation rises. Out of all expectation these gilts and bonds have fallen in recent months.
However, index linked gilts have risen by 18% in just the last 3 months. Much of this gain has occurred in the last 18 days just as gloomy economic forecasts have been hitting the news.
Some market aware observers believe these bonds could prove the safest place for your money if further war develops.
My expectation is that inflation will hit 15% and interest rates will fall between 5% to 7% before both vital economic factors stabilise. Inflation may technically fall (energy bills support) in the shorter term, but then rise out of control yet again I expect.
Gold and Precious Metals
Gold, seen as a safe haven for your money in difficult times, has had a volatile ride in the last several months. Just when you expect investors to pour money into gold they haven’t!
Gold has fallen dramatically but could represent a good buying opportunity in the mind of some currently.
Against today’s (3rd Nov) bad recession news, gold has risen by 2.19% just in the one day. Again or loss in any investment in one day has little relevance but may prove interesting against the backdrop of today’s negative news.
Consumer Staple Funds
As living costs rise people’s disposable income shrinks. Most household incomes will go, necessarily, to essentials. Food and clothing and things we have to buy just to live.
A fund where your fund manager invests in shares of companies that produce these ‘essential to life’ goods would seem a sensible option? An exhaustive search for suitable funds has been disappointed. The few funds that exist have very complex structures which regulators prohibit being marketed through investment platforms.
I have asked Tom, our stockbroker to provide a list of individual companies that provide ‘essential to life’ goods. These shares are in no way a recommendation to invest – simply a guide towards investing in this asset class should you choose to.
The risk of investing in individual shares is much higher than we would normally include in our thinking. However you may wish to learn more of this option? Please ask.
The Dear Old FTSE 100 Index
A gain of 34.83% in just over 2 years. How did that happen then?
On Friday 4th November our old friend gained a positive 2.03%. Yes on the Friday of bad news the Index gained 2.03%! Perhaps the plans of Sunak and Hunt are giving comfort to the markets? Perhaps it is the fact that the companies making up the Index hold assets across the globe. Maybe both factors?
Many of our students took the brave first step of investing in the stock market on a monthly basis. Most opted for the low-cost plan of tracking the FTSE 100 Index. To follow and feel the ups and downs with you I also invested £100 per month in the dear old FTSE.
Starting in September 2020, to date, my monthly savings have gained 34.83%. Well done to our monthly savers! Past performance is no guide as to the future performance. Have you thought of spreading your accumulated savings across infrastructure, index linked bonds and perhaps gold?
PLEASE NOTE: A financial or economic commentary like these, are written to explain, interpret or give an opinion on economic events and markets to help readers understand what’s happening and why it matters. Designed to help you make informed decisions of your own by making you aware of opportunities, risks and potential rewards in the market.
