Tuesday, May 05, 2009
Routine money management article turns Uber Bear
Moneyweek: How to preserve your wealth in these uncertain times
I linked to this from Damien's article posted at 2:36pm. At first, it seems to be a routine article about advising a friend who requires a low risk savings strategy. Then this: 'So she's thinking of buying another house. "Please don't!" I beg her. If, by some miracle, our economic policy works, and we come out of recession and deflation is avoided, interest rates will have to go up. There is no other way for them to go. That will be bad for house prices. But if – as I believe is more likely – UK economic policy fails, then there is going to be more unemployment, wages will fall further, business will stagnate and credit will continue to deflate. There will be less money to spend and that will be bad for house prices too." Next, he advises his friend to buy a little gold!
17 Comments
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1. drewster said...
Talking of gold, here's a contrary view to what we normally hear on HPC:
The Global Perspective (blog): Why Gold is Headed For $400
"There simply isn’t a reasonable case to be made for sustainable higher [gold] prices....."
I'm not sure what to make of his arguments. In general it's a very bullish, pro-Wall Street blog, with headlines such as "Yes, Banks Are Stressed. So What?"; and also "Time To Bring Back Investment Banking". Make of it what you will.
2. drewster said...
Also in bullish news...
Financial Times: Libor hits record low as credit fears ease
London interbank money market rates – the amount banks charge to lend to each other – fell to record lows on Tuesday in a further sign that the credit markets are thawing. The key three-month lending rates for the dollar fell below 1 per cent for the first time.
Don Smith, economist at inter-dealer broker Icap, said: “Conditions are improving with some signs of confidence coming back to the market.”
However, he warned: “We have to remember, we are still nowhere near back to the strength of activity we saw before the credit crisis. It is still a desert for unsecured lending beyond three months.”
============
I assume mortgages aren't linked to three-month loan terms, so it shouldn't have much effect on the housing market. However it does potentially signal good news for corporate borrowers; which in turn means a boost in shares (which we have already seen these last two months).
Personally I'm not convinced. Falling interest rates help with the servicing costs; but there's still that whopping great principal to repay. Lower interest rates just mean delaying the inevitable; we're once again facing a slow Japanese-style "lost decade".
3. quiet guy said...
Thanks for link Drewster and I agree that it's a rather strange blog.
I notice one of the blog articles is titled "Emerging Market Growth Heavily Debt-Fueled." Top marks for chutzpah coming from an American source, I say!
One amusing irony of the gold thing is that I bought some to try to alleviate concerns about the state of the economy - except that now I'm more anxious than ever about the supposed 'safe-haven' asset. What I'd give just to know what gold will do in a couple of years ...
4. mountain goat said...
If the advice was from a uber bear, apart from gold, he might have told her to take her money out of the bank. Take it out, stuff it in a safety deposit box, try survive the next two years as we watch electronic money credits deflate. But perhaps MoneyWeek are not allowed to say the banks are insolvent and there isn't enough money to guarantee deposits.
5. peeping tom said...
Surely if she has got cash she should be doing the auction rounds. I would. After all, the article talked about her 'downsizing' so she should have sufficient capital that she could downsize but without needing a mortgage, ie buying an auctioned property if she can find one at Y2K prices or thereabouts.
6. drewster said...
mountain goat,
I've always been under the impression that MoneyWeek are fair and frank with their readers. They practically told readers to get their cash out of Northern Rock back in 2007 (e.g. MoneyWeek: Will there be a run on Northern Rock?. That doesn't mean they can't be wrong though. They've been tipping gold for a long time now, and personally I'm less keen on the yellow stuff than I used to be.
7. icarus said...
Not another of Saint Dominic's Epistles to the gold Apostles.
8. confused76 said...
please do not waste your money on gold. let those brain-less of money week sing like a broken record.
gold is heading for the $500 and so money week for the dust bin.
havent we had enough of amateur financial advisors lately!?
and I think their chief editor, the lady who writes also on the FT, she was a trader... what in the world does a trader understand of the markets? at best some technical b****cks
9. confused76 said...
"I recently spoke to Robin Griffiths, the technical strategist at Cazenove, and he said: "The bottom is not in. The golden rule about bubbles and bubbles bursting – and it was a bubble – is when the bubble bursts you eventually get back to the same level you were before the bubble started. On that basis, there's another 50% down to go."
this is utter rubbish. where do they take these journalists, warm bodies from the street. this guy will go back serving beers in the pub at the corner of the street.
10. confused76 said...
My God! this is too much....!!!! This guy is a comic genius
"She can see that company earnings are falling and that stocks will fall with them. Nor does she want to put the money into her business, for similar reasons"
HAHHAH HAHAHA HAHAHHAHAH HHAHHAHAHHAH
my sides are splitting!!!
11. quiet guy said...
Strong words there confused76!
I acknowledge that you may turn out to be right about gold. Just as a matter of interest, if you had some cash you wanted to put aside for a couple of years, say £5K, what would you do with it?
12. mountain goat said...
Drewster
Thanks for the reference. I think it is different to advise on taking money out of one bank (and putting it in a safer one) as opposed to the taking it out of the banking system as a whole. My comment was aimed less at MoneyWeek and more on how many bears seem to stop short of advising removing money from the banking system. They go to great lengths to explain how the excessive leverage and now falling prices in the recession means the banks are insolvent, but then fail to follow through by saying a systemic meltdown is possible or likely. Perhaps they feel gov assurances have averted the danger of a meltdown, but my feeling is there is a certain sense of responsibility to the system. If everyone realises/decides the system is irretrievably in debt then that means meltdown is assured. How many times do you read advice to keep 10% of your savings in gold, but rarely to keep 10% of your savings in cash outside of the banking system. Gold hoarding is considered more or less acceptable (even Icarus might agree!) but cash hoarding isn't. However, IMO cash hoarding seems a rational choice if you believe deflation will continue and banks are insolvent while offering only tiny interest rates on savings.
13. confused76 said...
"And she can see that our policy-makers are debasing it through quantitative easing. So she doesn't want to hold pounds either.
She thinks the US has the same problems we do, so is worried about the dollar, while, being part-Irish, also fears the problems facing the euro. The mere mention of yen, Canadian dollars or Norwegian krona sets her nerves jangling."
so help me out, no pound, no yen, no dollar, no NOK, no euro... what is falling versus what!? if a currency falls another rises? eh?
the FSA should shut down these rugs!
big problem in the next few years is inflation. period. it is the oldest form of broad based tax that governments ask for when no options are left. at the same time practically every industry is undergoing consolidation. pick up future winners and invest in them. forget gold and gilts, those are bubbles: gold as other commodities is debased by collapse in leverage, and gilts... well that is a basket case, even money week understodd it
shares and leverage?? what is "money weak" talking about?
14. confused76 said...
"And she can see that our policy-makers are debasing it through quantitative easing. So she doesn't want to hold pounds either.
She thinks the US has the same problems we do, so is worried about the dollar, while, being part-Irish, also fears the problems facing the euro. The mere mention of yen, Canadian dollars or Norwegian krona sets her nerves jangling."
so help me out, no pound, no yen, no dollar, no NOK, no euro... what is falling versus what!? if a currency falls another rises? eh?
the FSA should shut down these rugs!
big problem in the next few years is inflation. period. it is the oldest form of broad based tax that governments ask for when no options are left. at the same time practically every industry is undergoing consolidation. pick up future winners and invest in them. forget gold and gilts, those are bubbles: gold as other commodities is debased by collapse in leverage, and gilts... well that is a basket case, even money week understodd it
shares and leverage?? what is "money weak" talking about?
15. bellwether said...
The bond market is not buying into the rally and the "green shoots" in the credit markets (eg libor falling to record lows) are purely a product of fed intervention - according to this very worthwhile read
http://zerohedge.blogspot.com/2009/05/of-fingers-and-dikes.html
16. drewster said...
bellwether,
Brilliant link, thanks. I'm particularly struck by the graph showing foreign treasury purchases going negative. This must mean the BoE - and possibly the ECB too - are up to the same tricks?
For us investors, presumably as long as the Fed keeps buying paper then the S&P will keep rising? There's zero chance that the Fed will cut back any time soon - in fact the article suggests they're more likely to expand interventions. Should we all pile in and fill our boots?
17. bellwether said...
Thanks MG, the following is a decent companion but can't post it for some reason. It focuses on what is rotten within the banks and why the efforts to hide this will come unstuck.
Maybe I'm feeling bearish because I just added to my long positions - a sure sign that the rally is about to end!
http://seekingalpha.com/article/135642-independent-analyst-numbers-far-uglier-than-official-stress-test-rumors?source=feed