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Weekend reading: GDP up, spirits down

Weekend reading: GDP up, spirits down post image

My weekly musing, followed by an extra long list of links (blame alcohol induced insomnia!)

A cute post on The Motley Fool this week frames rip-roaring German second quarter GDP growth in the context of The Matrix:

The two sequels to The Matrix were disappointing; the directors couldn’t pull the wool from our eyes twice. But if the Wachowski brothers fancy returning to the theme of parallel realities, they could do worse then cover investing in Europe in 2010.

It seems investors have been living two lives. In one life, they panic about a double dip recession. They worry about European sovereign debt and austerity measures choking off growth, and they park their money in low-yielding government bonds.

The other life is the real world, where the major economies have returned to growth and companies are reporting booming profits.

It’s true that Germany posting GDP of 2.2% has surprised almost everyone, including all 34 economists that Reuters polled ahead of the news.

It didn’t particularly surprise me to see solid growth, though I was taken aback by the extent to which Germany shrugged off the bad news agenda on Europe. I’ve noted before on Stock Tickle that the so-called sovereign debt crisis bothers pundits much more than the markets. I even looked into buying German manufacturers a couple of months ago, but was scared off by the £/ € exchange rate.

So far, so normal – as usual I’m out of kilter with the punditerati. While I’ve been trying to shuffle a bit of money into safer (yet still equity-like) securities such as preference shares, I’m still overwhelmingly positioned for growth and inflation.

From a long-term perspective, I am very comfortable with this; shares have underperformed for decades, and are due a bounce back against government bonds.

I also see little mileage in all the long complicated stories about the end of the Western World that have been gripping investors for years now.

Firstly, I don’t believe they’re accurate predictions. Secondly, if I did it’s not obvious how to prepare for it.

Even my brother was in touch this week, forwarding some rant he’d copy-and-pasted about the US being about to go bust and asking whether he should put his money into a silver ETF.

My brother! He has a lot of fine qualities, but the closest he’s ever come to a contrarian view on investing is overturning the board in a game of Monopoly. I can’t help thinking an email from him is the bearish equivalent of Joseph P. Kennedy’s stock tipping shoeshine boy in the roaring ’20s.

I told him as much, and also pointed out in the world he was preparing for – society breaks down in the US and all that – he shouldn’t count on being able to log into his online broking account to sell a few silver ETF shares to pay for the baked beans and shotgun cartridges.

I agree if you want to be scared, there’s plenty to be scared about; this Bloomberg interview with Boston University professor Laurence Kotlikoff is the latest dire warning to give everyone the willies.

But I’ve got doom and gloom fatigue.

A successful investor told me many years ago that stock markets crash on sky blue days, while bull markets climb a wall of worry.

It’s proved true so far.

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{ 7 comments… add one }
  • 1 Canadian Couch Potato August 14, 2010, 1:18 pm

    @Monevator: Thanks for the link. Good to know that armchair investors in the UK are fed up with the prophets of doom, too. I want to make a sign for my door that says, “Shhh! I’m investing.”

  • 2 Forest August 15, 2010, 10:22 am

    I wish I knew what was going on but I am finding it easier just to concentrate on my own spending rather than crashing or rising economies right now! I want to start investing a few years though so maybe I should start learning now!
    .-= Forest on: Blockbuster Game Rental =-.

  • 3 The Investor August 15, 2010, 2:38 pm

    @CCC – You’re welcome – it’s a super post, and one that I think could be aimed at my own blog, too, where I urge passive indexing for the majority then write about the weird and wonderful. I’m not sure what the solution is.

    @Forest – Learning now is great, but personally I’d suggest starting. In the Millionaire Next Door there’s a really strong case made that there’s never a ‘best’ time to start. Take the pain of diverting 5 or better yet 10% of your income into investing every month now, and get going. Take the standard of living hit now, and as your income increases you’ll still benefit (but do keep increasing the absolute amount you save/invest to your 5-10% target, too, naturally).

    Early savings are really useful due to compound interest. Maybe the bears are right, but if they’re wrong the next few years could be great ones for the equity markets after all this gloom (note the market has already rallied a fair bit since that post, so some of the great returns have happened).

    If you’re investing in the UK (I know you live abroad, but presume you still have UK ties) then a simple savings plan into an index fund like Fidelity’s MoneyBuilder is a good fire-and-forget way to start.

    Do your own research of course – this is a view, not advice! 🙂

  • 4 Tim August 16, 2010, 2:31 pm

    As last weeks GDP numbers confirmed the weak Euro is probably the largest stimulus package the German economy could get.

    I am sure Ireland is also benefiting.

    I looked at German manufacturers some time ago but they were all to expensive, even small caps.

    I agree forecasting currency movements is a waste of time. I just focus on buying undervalued companies irrespective of where I find them.

  • 5 The Investor August 16, 2010, 4:23 pm

    Buying the DAX/German companies might have a bit of a hedge in it, in that if the Euro strengthens and their competitiveness tails off, some of the decline in valuation could be made up for by the currency uplift of your holding. I’ve benefited a bit from a similar swings-and-roundabouts in Japan.

  • 6 Barb Friedberg August 17, 2010, 11:05 pm

    Hi Monevator, Thank you for letting me BENEFIT from your insomnia by including my post on the Magic of Compounding! I appreciate it!
    .-= Barb Friedberg on: When to NOT to Splurge =-.

  • 7 The Yakezie August 18, 2010, 5:05 am

    The BMW 5 series is the most in demand car in America. That’s a bullish sign!

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