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Holly's Blog: Everything Is Awesome

19 June, 2020

Figures out today confirm that Government debt has hit blistering levels. The debt pile is a whopping £1.95 trillion and has gone up by 21% in a year. For the first time since 1963 debt is larger than the size of the economy.

In May alone, the Government borrowed £63 billion in cash. To put that into context, this is more than they borrowed in the entire 2019 – 2020 financial year. Basically they are spending more whilst getting less in from taxes and so borrowing to plug the gap.

Retail sales data looks perkier

There has been one jollier set of numbers published - retail sales in May which have ‘bounced back’, although spending levels were still lower than pre-COVID levels. But of course retail sales are only about one-third of household spending. The thinking is that we have diverted some of our ‘services’ spending into ‘goods’ spending (e.g we have bought bread makers rather than going out for breakfast; exercise equipment rather than going to the gym) and so these figures in part just represent a re-allocation of spend, rather than shopping frenzies.

Over at the Bank of England – Chieftains O’ Interest Rates – and negative interest rates are amongst the options being considered, according to the Guv’nor. Andrew Bailey has stressed that there is no immediate plan to cut rates below zero but he has also confirmed that he wants the option in his kitbag. Negative rates – an entirely alien concept to wrap our heads around – mean banks charging people to hold their savings, to encourage them to spend.

Financial Viagra courtesy of the Central Banks

Over to stock markets and it’s relatively calm. (Welcome to the new normal where weekly rises and falls of 5% are calm!) Better brains than mine are bullish. But I think we almost nonchalantly forget how much central banks have done to pump up and protect stock markets. They have quite literally thrown money at the problem, but this cannot go on indefinitely.

At some stage – and btw this won’t be soon - printing all this money and prescribing all this financial Viagra will lead to inflation. I won’t bore you with the detail, but high inflation leads to high interest rates which kill off bond prices and are not great for shares either - it makes it harder for companies to borrow and grow. It does give gold its time to shine. An asset which you can touch, bite, make crowns out of and metaphorically hide under the bed does well when inflation is spooking the markets.

BUT. All of that is some way off. I think markets will be resilient for some time but at some stage over the medium-term I believe a slump is arguably simply inevitable.

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Oh, cheers Mrs Cheerful. So what to do?

Depends on your timeframes. If you’re still some way off retirement and in the ‘accumulation’ phase, I think the next 5-10 years will bring buying opportunities with your long-term hat on. I also think these markets will make active management more interesting and present challenges to passive managers which they have not had to face in nice, simple bull markets. (Huh!? What are you on about Mackay? OK - when everything is broadly going up, you just buy a chunk of everything, and Everything Is Awesome, to quote The Lego Movie. That’s passive. You’re riding a lovely wave and doing it cheaply. When some sectors are dive bombing and some major brands are facing bankruptcy, it’s more like a game of financial battleships and you want someone actively charting a course through it, avoiding the mines. That’s active. The downside of this is of course that it’s more expensive and some of the Captains are duds!)

For those approaching/in retirement, I think it’s a very different story. In bull markets, despite what financial planners might try to get us to do, I don’t think many of us think clinically about how much we actually need or what our goals are. We just get a bit greedy and try and buy things which will go up as much as possible. Today, with markets so volatile and with bonds looking a bit iffy (IMHO) I think those in retirement need to re-adjust and think more carefully about preserving what they have. And preservation is an entirely different mindset to growth.

As always, we only lose money from investing when we are forced sellers. Otherwise assets are literally just red numbers on a screen, not green numbers. We would all do well to make sure we’ve considered how much cash we might need over the next 2-3 years, and just to have a dispassionate think about where we might get this from, and plan ahead to ensure we won’t have to be forced sellers when things have may headed South, or are in a trough. That’s not meant to be alarmist at all by the way – just prudent.

We don’t need to think about our investments or savings as one single lump sum, with the same characteristics. Try splitting your savings into short-term, medium-term and long-term piggy banks and each can have a slightly different strategy. With cash in the short-term. The medium-term piggy bank is the hardest one to get right at the moment – we are no longer investing in the age of Everything Is Awesome.

Have a lovely weekend everyone. And I apologise to those of you who now have that song ringing through your head. Sorry… therein insanity lies! Tra la la…


P.S. If you are in retirement and could use a sense check, you can get financial advice for an hourly rate for ad hoc needs. Not all advisers will offer this but a decent number will. Expect to pay about £150 - £250 an hour. We list advisers by areas and professional capabilities. The stakes can be quite high and it can feel stressful – so just be aware you don’t need to sign up for life to get some help.

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