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Holly's Blog: Gordon versus Mary

11 July, 2017

Doom and gloom this week as global stock markets took a tumble, pausing for breath today as the dust settles. Thursday’s losses saw US stock markets down by 5% over the week. The global and imaginatively named FTSE All-World index retreated for a sixth day running, wiping out pretty much all of 2018’s gains in one of the worst weeks of the year. The FTSE 100 had fallen by about 7% this week, but has stabilised and recovered about 1% as I write this on Friday morning.

Why the falls?

Markets are jittery. This week the US reported inflation of 2.3%. The cost of living is certainly under control but going up a little faster than bigwigs would like. Interest rates are the central banks’ brakes, to be applied if things are speeding ahead and need to be kept under control. So people anticipate a rate rise (or several) ahead.

Stock markets react to this with nerves. If the cost of borrowing money increases, companies are less likely to buy factories, invest in growth and hire more people. And customers are less likely to buy new houses, cars, fridges, iPads and shoes. Wall Street and the High Street slow down. Companies sell less. So make less. And share prices go down. In theory.

Listening to the Fed’s fairly upbeat outlook for the US economy, creating headlines anticipating higher interest rates, Donald Trump realised he had dropped his guard and not offended anyone for 48 hours. So he accused the Fed of being “out of control” and “crazy”. Which is a bit like Gordon Ramsay calling Mary Berry a sex-crazed psycho*. Ironic to say the least.

The bigger picture

This is not just about interest rates. It’s also the rising and ongoing spectre of trade spats between China and the US. And frankly the fact that markets have been charging ahead for some time now, led by overinflated tech stock egos and prices. All good things come to an end.

China’s online powerhouse Tencent is one tech darling which has suffered. Its shares are down a blistering 40% since January. Tencent Music Entertainment was to be carved out and list on the stock markets later this month, but will likely postpone after this week’s rout. More IP-No than IPO.

Ongoing volatility and wobbly tech stock prices seem inevitable.

What to do?

Investing makes us all nervous. And when things start to jump about, we want to do something. To take back control. I know from data that this is a particularly male trait – men log in to accounts more, especially during turbulence, and want to fix things. It’s a classic Men are from Mars, Women are from Venus thing. Woman just wants to let off steam, share a problem and download. Man feels the compulsive need to find a solution, pick up a stick and fix it. Woman gets cross. Man feels wounded. (See – I should have been a shrink!)

Stock markets are much the same, chicos. Sometimes just standing back and watching is OK. Trying to anticipate Trump, Tencent, Xi Jinping and the Fed – and then predict what stock markets will do in response to them - is not an easy game.

So here are my three 'expert economic genius' tips, on how to manage your portfolios over the coming turbulence:

  1. Diversify.

  2. Be sure you have enough in cash for emergencies and to weather any storms. 3 - 6 months’ income in cash usually makes sense.

  3. And then log off and watch Strictly instead!

*If Boring Money had either an editor or an in-house lawyer, both would wish to make clear that references to Ms Berry are hypothetical and designed only to illustrate a point.

We make no slur on the Queen of Sponge who is a legend, and before whom we bow down in reverence and respect.