Good reads from around the Web.

After typing my little fingers off last night with my thoughts on the response to the death of Margaret Thatcher, we’ll go straight to this week’s links today.

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They say a week is a long time in politics. It feels like an eternity when the politician is dead.

Since the moment the Margaret-Thatcher-news-spectacle began, my Facebook feed has blazed with jubilation, Ding Dong The Witch Is Dead videos, and links to articles demonizing her and her achievements.

Par for the course among my intelligent middle class friends, for whom there isn’t an economic or social issue that can’t be addressed with a viral graphic, a hyperbolic Polly Toynbee article, or by ‘Liking’ a photocopied letter from a pissed-off pensioner.

I have no quarrel with somebody expressing disapproval of Mrs Thatcher or her policies, though on balance I admired the woman myself.

But the venom and ignorance of these 30- to 40-somethings goes beyond that.

My friends believe they are being engaged, but with their tribal mantras and kneejerk reactions they reduce themselves to bloc voters for career politicians and traffic conduits for linkbait articles.

They see the world not just through the prism of a media hyper-vigilant to any expression of truth or uncertainty, but also – thanks to the polarisation of the Internet – they see just one side of its manufactured debates.

Thatcher versus Kinnock has become Tweedledum and Tweedledee, and my friends all rage over rounding errors.

Wake Me Up Before You Go Go

I was on holiday when Margaret Thatcher died, which was why I was getting my news from Facebook.

I was also abroad when Diana died. Back then I learned the news from a discarded front page blowing across New York’s Central Park. Flying into London a couple of days later was slightly surreal – the city seemed quieter, and changed. Conversations were edgier, and unexpected people took offence. The mood passed and may have been an illusion but it was scary while it lasted.

This time I was prepared to find the UK in uproar. Going by my Facebook feed, the country was at war.

But no, it was just my friends – or my generation.

As I watched Question Time that night, I was relieved to hear a sane and balanced account of the Thatcher era. Even Polly Toynbee made an effort to be reasonable.

Phew! From my arguments on Facebook, I had begun to wonder if I’d invented the 1970s that sowed the seeds for Thatcherism.

My friends seemingly had no idea about the union brigands who’d helped run the country into the ground or the corporatist fat cats sitting on top of dying manufacturers like so many little King Canutes squatting on sandcastles as the water rose.

What about the economic transformations that swept the globe in the 1980s?

Question Time confirmed I didn’t invent globalisation and technological progress, either – though my friends seemed to think Mrs Thatcher did, given everything they blamed her for, including that life isn’t a Hovis bread advert of cobble streets and sunshine.

That would certainly come as news to the rest of the world that saw exactly the same economic forces at play. Even China was presumably a Thatcher side-project.

Thatcher’s critics imbue her with supernatural powers. It’s always easier to hate the player as opposed to the game. There’s a very good argument that she moved too far, too fast, but perhaps we only really know that through hindsight. I’d like to think it could have been less bitter, but I certainly don’t believe the bitterness was all her fault. Again, see the 1970s.

(Oh, and by the way, UK factories make more cars than we did in the late 1970s – and last year we exported a record number.)

Tainted Love

After availing my friends of such facts, my Facebook comrades inform me that even if the 1970s were that bad – which they doubt – why couldn’t we have modernised like Germany, which they regard as some kind of have-it-all Nirvana?

Because Labour tried to negotiate with the unions and James Callaghan was destroyed for his troubles.

Who? You can almost hear them tapping away on Wikipedia.

As it happens, my hosts this week were German, so I was on hand to see what some of them thought about the Iron Lady.

One septuagenarian aunt demanded to know why I wasn’t wearing a black armband.

She gripped my shoulder. “What Maggie did in the 1980s, Schröder could not do until 2004. You were the lucky ones!”

Still, Mrs Thatcher didn’t have to destroy the welfare state, did she?

Indeed she didn’t – the first thing she did was raise taxes, and state spending never fell much. Welfare spending actually rose sharply, although for all the wrong reasons.

And heaven forbid anyone should aspire to buy their own milk.

Pass The Dutchie

My generation – the Children of Thatcher who were born in the 1970s and came of age as she was booted out of office – appear certain of everything, but unwilling to learn much about anything.

Am I right to be so scared of what they represent?

I suggested to one that he considered the choices the country faced three decades ago before condemning Thatcher as evil incarnate.

Michael Foot’s Labour, for instance, wanted to withdraw from NATO and the EU, to hand over our nuclear weapons unilaterally, and to nationalise anything that hadn’t already been run into the ground. It wasn’t until New Labour that there was a credible alternative – and I voted accordingly in 1997.

Within seconds he was condemning Tony Blair as Thatcher in disguise.

The Land of Make Believe

Let’s not split hairs. My friends are idiots.

I love them, but they’re idiots.

They express or admire what would have been seen in the 1970s as hard leftwing views, but are now defined in the language of “fairness” and defined through opposition.

• All profits are bad, all welfare is good.

• All cuts are bad, but taxes are good (so long as they’re not paying).

• Capitalists are bad, engineers and doctors are good.

• Politics is bad, Twitter hashtags are good.

All fair enough if you’re a member of the 1970s loony left who has read Marx (as I have) and you believe in a socialist utopia.

But my friends haven’t read Marx, and I don’t believe their heart is really in the logical consequence of what they’re demanding.

My friends buy cheap trainers made in China, take cut-price flights around the world, switch energy providers with a moan when their bills rise, and job hop with abandon. They enjoy rising house prices, and they complain about council tax bills. As I say, they are Thatcher’s children.

Three of the biggest spouters of hard-left claptrap run their own businesses. They make extensive use of low-cost freelancers. They sell their wares across the world. Naturally and sensibly they structure their affairs tax efficiently. One was apoplectic in the hiatus before Entrepreneur’s Relief was introduced.

You cannot make it up.

Do they think they’d be doing this with 1970’s Labour in power, a Union shop steward squaring up against every staff decision, capital controls and more red tape than you’d see at an International Worker’s Day parade?

I’m certainly not saying they should vote Tory. But they could at least be realistic about where their business success and lifestyle springs from – and I honestly can’t see why they’re not all for Blair’s New Labour.

But no, they’d rather believe in some Ealing Comedy-accented economic Disneyland that never was.

Karma Chameleon

The disconnect – between why we live the way we do today and their fantasy politics – is by turns pathetic and terrifying.

But I shouldn’t be surprised by it – it’s been building for years.

The ink was not dry on the Coalition document before my friends started accusing the Conservatives of “taking a sledgehammer” to the welfare state. They sounded like a bunch of teenagers singing the UB40 favourites of their parents at a reunion concert.

One of them – one of the business owners – linked to a hysterical Toynbee article, calling it a: “Superb, dark, desperate article about the Conservatives’ barely-hidden agenda to tear down the state”.

He went on as usual to cite the devastation that had been caused by cuts, the millions unemployed, and so on.

I pointed out that state spending was still rising, and that Labour had (rightly) been committed to curbing spending, too, following the financial crisis – at least until it conveniently lost the election. (I suggested he read Alistair Darling’s excellent biography for more).

I even pointed him towards this graph showing state spending as a percentage of GDP was still rising. So much for destroying the State!

He looked at the graph and changed his tune to “most of the cuts are still to come”, which was at least accurate.

Presumably the mere sight of the sledgehammer in the box was what caused all the damage he claimed to have witnessed earlier on?

I am no apologist for the current government, who I consider timid and low-calibre. But tyrannical destroyers of the State they are not.

Stand And Deliver

I regularly go through the same rigmarole: some news event grabs my friends’ attention, they deposit a fanatical take on it on Facebook, and it is debunked by me or a handful of others until one of us loses interest.

But most are not debunked because there are only so many hours in the day. Instead there’s an orgy of agreement and the world gets a little dumber.

I find the Daily Mail unreadable and its coverage of Mick Philpott was no different, but I do think there is a point to be made about the extremes of benefit abuse. People need to trust the system to ensure its support.

My friends replied with graphs about tax avoidance.

I believe in the welfare state as a comprehensive safety net. If even half what my friends claim was true I’d be on the streets. But I also think the State has the clear capacity to enfeeble its citizens – and I don’t want to pay when it does.

If you want a welfare state, then you need to defend it against its abusers, as well as its opponents. My friends should be the first to demand action against those who exploit the taxpayer – and deprive the deserving – just as how as a believer in capitalism I have railed on Monevator for years about egregious bankers.

And incidentally, I didn’t have a spare bedroom until I was 33, and I pay about £200 a month for it. Is then the invidiously re-branded “spare bedroom tax” of £14 a week such a terrible deal? Resources will always be limited – wouldn’t it be better if extra rooms are directed at those who need them most?

Don’t bother asking my friends. Details. Don’t I know someone in the City lives in an expensive house somewhere or other?

It’s A Sin

Have you ever been down a coal mine? I have – in a highly sanitised form – and it was ghastly.

Mining coal was a dangerous, unhealthy, and basically dreadful occupation and I’m glad I’ll never have to do it.

But the left (and many on the right) love their sweatshops – and the very best worker is a sweating worker with a top unbuttoned and chest glinting.

I’m not going to presume to tell anyone who was mining coal in 1981 that Thatcher was good for them. Clearly the sense of community and camaraderie that made the mining life even half bearable was torn apart when the mines closed. They lost their jobs and many never got new ones. It must have been devastating. I am not surprised they hate her.

But my air-conditioned friends? If coal mining still existed, they’d be campaigning against it.

All Lost In The Supermarket

My friends remind me of shoppers in the meat aisle of Tesco.

They pick their way through the packaged bacon and the various cuts of chicken, and the thought of the screaming death of a pig or a chicken hanging from its feet to be electrocuted never enters their heads. Perhaps they occasionally march against fox hunting.

It’s the same with politics and economics. They don’t want to think about reality. They just want to enjoy the good stuff, and forget or dismiss what delivered it. Think of the last milkshake-guzzling humans going around in circles in Pixar’s Wall-E.

Like KFC has had the word chicken stripped from its name and the bones removed from many of its finger licking good products, so my friends aren’t capitalists or communists or socialists or anything else with a name, a face, or a spine.

They just want things to be “fair”. Anything can hide behind that innocuous word.

It’s the same with every hard problem they run into. Even the age-old question of religion was reduced to a one-liner by my generation, as this recent Spectator article points out:

“When such questions arise, a big bright ‘Complicated’ sign ought to flash in one’s brain. Instead, in the wake of 9/11, many otherwise thoughtful people opted for simplicity over complexity.”

If the meaning of life can be reduced to a joke poster stuck on a bus, what chance does politics stand?

Don’t Stand So Close To Me

To understand my generation, you have to see them as modern consumers who want to feel good at all times.

They want to eat everything they can, shout slogans about the dignity of the hooded-classes they cross the street to avoid, fly 5,000 miles to eco-resorts, and thrive in a system they claim to despise.

By and large they do nothing different to anyone who votes any other way. Perhaps they drink Fairtrade coffee, and like all of us they sponsor someone in the office when she does a charity run.

Sacrifice is conspicuous by its absence. They are not going without, nor are they out there campaigning. They’re pressing a button on a web page, and turning off a switch in their brains.

This is the generation, remember, who greeted the fall of communism by going on a ten-year bender in Thailand.

When they marched against the invasion of Iraq, I imagined they were marching against the indignity of the party ending.

Ghostbusters

‘I think we have gone through a period when too many children and people have been given to understand “I have a problem, it is the Government’s job to cope with it!” or “I have a problem, I will go and get a grant to cope with it!” “I am homeless, the Government must house me!” and so they are casting their problems on society and who is society? There is no such thing!

There are individual men and women and there are families and no government can do anything except through people and people look to themselves first…

There is no such thing as society. There is a living tapestry of men and women and people and the beauty of that tapestry and the quality of our lives will depend upon how much each of us is prepared to take responsibility for ourselves and each of us prepared to turn round and help by our own efforts those who are unfortunate.’

– Margaret Thatcher, 1925 to 2013

Note: I’ve said my bit here and I’m tired of arguing, so while I’d love to read your views below I won’t be responding. I appreciate some of you will entirely disagree with me and disliked Margaret Thatcher. I’ve got no problem with that – she was a divisive figure. But know your reasons. I’m more interested here in the demonization – and the social media ‘debate’ around modern politics. Be aware that anything abusive or flippant will be deleted.

RIT is back with his roundup of the key asset class moves over the past three months. He also runs his own website, Retirement Investing Today, which has lots more data to digest.

It’s been an exciting quarter for the markets. The FTSE 100 charged out of the New Year blocks, rising 5.3% by 1 February – though by the close on 5 April that had turned into a more subdued gain of 3.7%.

I can see little justification for the increases in UK share prices if I just look at company performance, given earnings at FTSE 100 companies continued to fall. US earnings look flat, too. (Editor’s note: Remember that the stock market is forward-looking, so investors may be predicting higher earnings to come).

Interesting events in the period included:

• The near-collapse of the Cyprus Banking System. I will make two points. Firstly, the handling of the situation by the powers-that-be can only be described as an omnishambles. Secondly, this poor handling has, in my opinion, allowed us to see that deposit protection schemes like the UK’s £85,000 Financial Services Compensation Scheme will not necessarily protect you in the times they were designed for.

• The latest central bank stimulus package, this time by Japanese Central Bank, which will purchase 50 trillion yen (£350 billion) worth of government bonds. That’s £2,738 on behalf of every man, woman and child in Japan, and is equivalent to 10% of Japan’s GDP. Is it just a coincidence that Japan’s government deficit also happens to be about 10% of GDP, meaning they have their bond buyer for the next year already in the bag?

• The 2013 UK Budget. A pretty dull affair except for the Help to Buy Scheme. It will be interesting to see what effect this has.

To give the government the benefit of the doubt, the fact that the first portion of Help to Buy, the equity loans, are targeted at new builds, is possibly the government trying to encourage an increase in the UK housing stock through demand for new builds. Something we badly need in this great country – and also something clearly beneficial to new build property developers.

But I’m a glass half-empty person and so I wonder if it will also encourage a negative – sub-prime loans – that we know all too well from the US housing downturn of a few years ago.

Under both of the Help To Buy schemes, the borrower will be on the hook for 5% of the purchase price and the UK taxpayer for a further 20%, so we will have to see price falls of 25% before the banks feel any pain. Safe in this knowledge – and given that banks exist solely to make profit – will they relax their lending criteria, given they get the revenue upside but don’t carry so much risk?

Please do share any thoughts you have on this or any of the macro events of the last quarter with other Monevator readers in the comments below.

Disclaimer: I must point out that what follows is not a recommendation to buy or sell anything, and is for educational purposes only. I am just an Average Joe and I am certainly not a financial adviser.

Your first time with this data? Please refer back to the first article in this series for full details on what assets we track, and how and why.

International equities

Our first stop is stock market information for ten key countries ¹.

The countries highlighted in the image (which you can click to enlarge) are the ten biggest by gross domestic product. They also represent the countries that a reader following a typical asset allocation strategy will probably direct their funds towards.

Here’s our snapshot of the state-of-play with each country:

The prices shown in the table are the FTSE Global Equity Index Series for each respective country. ² The prices in the table are all in US Dollars, which enables like-for-like comparisons across the different countries without having to worry about exchange rates between them.

The Price to Earnings Ratio (P/E Ratio) and Dividend Yield for each country is as published by the Financial Times and sourced from Thomson Reuters. Note that these values relate only to a sample of stocks, albeit covering at least 75% of each country’s market capitalisation.

Here’s a few interesting snippets:

• Best performer: Price-wise Japan was the best performer over the quarter, rising 11.2%. It’s likely a large portion of this was caused by the stimulus announcement I mentioned above. Year-on-year the honour goes to the US. It’s up 9.7%.

• Worst performer: China takes this wooden spoon, with its market falling 11.0% quarter-on-quarter.

• P/E Rating: On the back of share prices rising even as earnings have fallen, the UK has seen a big P/E increase – up 14.1% on the quarter. The multiple on the UK market has now risen 37.7% year-on-year – which means its 37.7% more expensive, all things being equal. China on the other hand saw its P/E fall 7.1%, quarter-on-quarter.

• Dividend Yields: If you are saving for the long term, whether it be for retirement or some other long term goal, dividends matter. Russia, if you’re a brave investor, now has the largest dividend yield from this group, at 4.5%. We don’t include it in our roundup, but if you’re after dividend yield you might consider a less adventurous choice, Australia, where the MSCI Australia Index is yielding around 4.3%.

Remember that falling prices usually increase dividend yields. So rising yields aren’t necessarily good news for existing holders, since they most often indicate prices have fallen. A higher yield might indicate a more attractive entry point for new money, however.

Longer term equity trends

To see how our ten countries are performing price wise over the longer term, we use what we call the Country Real Share Price.

This takes the FTSE Global Equity Price for each country, adjusts it for the devaluation of currency through inflation, and resets all of the respective indices to 100 at the start of 2008.

Here’s how the countries have performed over the five years since then, in inflation-adjusted terms:

The graph reveals that – in real terms – we are still in the situation where not one of the countries has seen its market reach new highs.

The US is closest at 99.3, while Italy is down even further on the quarter (or got even cheaper, if you’re a contrarian investor!) at 32.7.

Spotlight on UK and US equities

I couldn’t talk about share prices without looking at the cyclically-adjusted PE ratio (aka PE10 or CAPE). If you’re unfamiliar with these terms, you can read what the cyclically-adjusted PE ratio is all about elsewhere on Monevator.

Below I show charts that detail the CAPE ³, the P/E, and the real, inflation-adjusted prices for the FTSE 100 ⁴ and the S&P 500 ⁵.

Some thoughts:

• Today the S&P 500 P/E (using as reported earnings, including some estimates) is at 17.2 and the CAPE is at 22.0. This compares to the CAPE long run average of 16.5 since 1881. This could suggest the S&P500 is overvalued by 33%, which is identical to last quarter’s overvaluation estimate.

• The FTSE 100 P/E (again using as reported earnings) has risen considerably to 13.6 and the CAPE is 12.6. Averaging the CAPE since 1993 reveals a figure of 19.3. This could suggest the FTSE 100 is still undervalued by 35%.

I personally use the CAPE as a valuation metric for both of these markets and use the CAPE data to make actual investment decisions from using my own money. Other traders and investors are cynical about the usefulness of the CAPE.

House prices

A house is probably the largest single purchase that most Monevator readers will ever make. It’s therefore worth looking at what is happening to prices.

In the roundup I have chosen to calculate the average of the Nationwide and Halifax house price indices, as follows:

If you are a home owner then the quarterly news is good, with prices up £2,197 or 1.4%. Of course if you’re already priced out then home ownership just moved a little further from your grasp.

I believe this latest move was largely driven by one of the other Government schemes currently running in the UK, the Funding for Lending Scheme, which has now driven average two-year real (i.e. inflation adjusted) fixed rate mortgages to negative levels. I believe house prices are driven by affordability, and that is largely influenced by mortgage rates.

Annually the news is more subdued, with prices up 0.6%.

The next house price chart shows a longer-term view of this Nationwide-Halifax average. I adjust for inflation, to show a true historically leveled view:

In real terms housing continues to fall, with prices back at approximately October 2002 levels.

I continue to believe the market is overvalued, although I’m sure the majority of the British public don’t necessarily agree with me. That said, I am starting to see similar views expressed in the mainstream media now and then.

The schemes prior to Help to Buy have helped make houses affordable, but this has occurred even as volumes have fallen through the floor. It will be interesting to see if Help to Buy helps transaction volumes, given that a lot of what would have been bank risk will now be transferred to the taxpayer, possibly encouraging looser lending practices.

I personally wish the UK government would stop propping up this market and enable it to adjust to the free market price. But for every one of us with this wish, there are plenty on the other side of the fence.

Commodities

Few private investors trade commodities directly. However commodity prices will still affect you, and maybe your investments.

With that in mind, I’ve selected five commodities to regularly review. They were chosen based on them being the top five constituents of the ETF Securities All Commodities ETF, which aims to track the Dow Jones-UBS Commodity Index. ⁶

Quarter-on-quarter we see natural gas up a large 13.4% and year-on-year an even larger 75%. I’m not surprised at this, given how natural gas prices had lagged the other commodity price increases that we track.

My preferred commodity for investment purposes is gold. It’s down 5.5% on the quarter, which has caused me to buy some more for my own rule-driven investment portfolio.

Real commodity price trends

My Real Commodity Price Index looks at commodities priced in US dollars, is corrected for inflation so we can see real price changes, and resets the basket of five commodities to the start of 2000.

Even after its recent falls, gold continues to be the star performer – it’s up to an index value of 404 from 100.

On the other hand, as mentioned above, the under-performer is natural gas. It is just above par at 114.

Wrap Up

So that’s the fourth Monevator Private Investors Market roundup. A lot of data which I hope gives a small insight into the market’s trials and tribulations over the previous quarter. As always it would be great to receive comments or thoughts below.

Finally, as I always say on my own site, please Do Your Own Research.

Check out RIT’s previous investor roundups, or for more of his analysis of stock markets, house prices, interest rates, and much more, visit his website at Retirement Investing Today.

1. Country equity data was taken as of the first possible working day of each month except for April 2013, which was taken on the 5 April 2013.[↩]
2. Published by the Financial Times and sourced from FTSE International Limited.[↩]
3. Latest prices for the two CAPEs presented are the 5 April 2013 market closes.[↩]
4. UK CAPE uses CPI with March and April 2013 estimated.[↩]
5. US CPI data for March and April 2013 is estimated.[↩]
6. The data itself comes from the International Monetary Fund.[↩]