Remember when Mervyn King, Governor of the Bank of England, was all about applying ‘Moral Hazard’ to the banking system? You know, the idea that some banks had to fail to teach others not to make dodgy lending decisions? You can be sure King remembers making statements on risky lending like this:

“The provision of such liquidity support undermines the efficient pricing of risk by providing ex-post insurance for risky behavior. That encourages excessive risk-taking, and sows the seeds of a future financial crisis.”

Ah well, six months is a very long time in a credit crisis. One winter of discontent later, and Merv the Swerve has done a U-Turn, with the Bank announcing today its much-mooted Bring-and-Buy-a-Bond sale.

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Back in September 2007, I concluded a series on how to roll your own income generating high-yield portfolio (HYP) of leading UK shares with an article that put together an example portfolio.

I’ve not tracked that portfolio’s performance, but I’m sure its value has fallen; we’ve been in a bear market, and high-yield dividend payers have suffered at least as much as any other shares. (The paid-for equivalent, the equity income funds, have certainly slumped.)

I’m not too bothered by that September HYP’s decline, however, for five reasons:

• Short timescale: Six months is a ridiculously short-term in which to judge a share portfolio’s performance – come back in five years, or better ten.
• Volatility in inevitable: There are no guarantees in stock market investing – shares can, famously, go up and down. This happen however and whenever you invest. If you’re risk averse but want market exposure, consider drip-feeding in your money, which will likely reduce your overall returns but will at least avoid you putting money in at exactly the wrong time.
• HYPs are all about income: So far as I know, none of the 20 shares I put into my example portfolio have cut their dividends.
• I don’t give advice: Please read my disclaimer.
• Many blue chips are now cheap: It looks a great time to top-up the HYP.

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The newspapers are full of stories about the rapid inflation in basic foodstuffs like rice and potatoes. We’re warned of social unrest, new global inequalities, and even the selfishness of speculation (which you can engage in via an agricultural ETF, although I prefer to think of it as insurance against my escalating grocery bill).

Yet ironically, the other economic story making headlines in the UK this week is the tiny fall seen so far in house prices, which comes after a tripling of prices in little over a decade. When it comes to houses, we’re told, stupidly high prices are good.

After an initially reasonable response, PM Gordon Brown has been spooked into promising he will do all he can (which hopefully won’t be much) to halt the decline. Property pundits are ringing their hands about a looming crash even as they phone their estate agents to sell, and banks and building societies are warning that the end of civilisation is but a repossession away.

But consider this: why are rising food prices bad, yet falling house prices not good? We all need somewhere to live, just as we need to eat. Surely we should rejoice that prices are coming down, given all the woes of first-time buyers unable to afford a shoebox on the edge of town, the twenty-somethings unable to leave home, and so on?

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