My weekly reflection, plus the week’s top links.
Quick! Sell any shares you were foolish enough to buy, hoard gold and government bonds, and avoid paying taxes because Government quangos will only flush your money down the toilet while singing Don’t Cry for Me Argentina.
Heck, if you can’t beat them, join them.
At the start of the year I wrote Britain was booming [1] – a slightly hyperbolic title I admit, but also a deliberately provocative one that turned out to be right. Back then, nobody had anything good to say about the UK economy, and the spectacular rise in share prices in the months prior was blamed on cheap money.
It’s been the same story all year here, in Europe, and in the US, as I’ve chronicled on my Stock Tickle [2] blog (now on hiatus, due to time constraints).
Yet people far prefer to read doom and gloom disaster stories from people who sound wise by not sounding happy.
As I’ve written before, the bear case always sounds smarter [3]. Writers – particularly bloggers and newspaper columnists – can’t tell us enough how the US recovery is a limp-wristed thing that will end in President Obama selling California to the Chinese to make interest payments on the US deficit.
Yet in reality, this is actually on some measures the strongest US recovery for 25 years [4], as the FT reports:
The current US economic recovery is widely perceived as the weakest ever, syncing with the popular idea of a “new-normal” economy. Although this recovery is not as strong as those of the 1970s, on many metrics its first year anniversary has proven stronger than either of the last two recoveries during the previous 25 years.
Despite a significant slowdown in the second quarter of this year, real GDP growth in the first year of this recovery was 3 per cent compared with first year recovery gains of only 2.6 per cent in 1991 and 1.9 per cent in 2001. Persistent private job creation took 12 months once the recession ended in the early 1990s and it took 21 months after the 2001 recession.
This recovery began producing persistent private job gains only six months after the recession ended. Moreover, in the first 14 months of this recovery, 205,000 jobs have been lost. While this is surely disappointing, it compares with 220,000 and 935,000 cumulative job losses respectively at this point in the 1991 and 2001 recoveries.
Obviously if you’ve not got a job or you fear losing the one you have, things are terrible. But that’s always the case – not just at the end of recessions. Besides, as I’ve stressed many times, unemployment is a lagging indicator [5].
I’m not blind to the problems. The US house market crash has led to permanent wealth destruction, and we still look overdue a proper correction in the UK. (I rent, but hedge my bets with Lloyds shares [6]). The US is still growing, but more QE [7] is mooted in the US because inflation remains stubbornly low. I’ve been wrong about government bonds [8] all year for the same reason.
Consumer confidence also remains miserable – not surprising perhaps, given the torrent of bad news hurled at them daily through the press and on the Internet.
In reality though, investors make money when they buy companies at cheap prices that go on to do well, not when some bloke in the pub thinks China is a friend not an enemy, or when his sister feels happy enough to buy a buy-to-let property in Torremolinos again.
And corporate profits have been soaring as the global economy has continued to expand. S&P 500 company profits will be up about 45% in 2010, and are forecast to rise 15% next year.
Companies are so financially sound – and debt is so cheap, due to low interest rates and perma-bearish investors preferring to buy Microsoft bonds with the lowest yields on record [9], instead of its cheaply rated stock – that they’ve begun to snap each other up like ladies who lunch buying Jimmy Choo’s back in the boom.
None of this puts shares in the bargain basement; on a P/E basis they look good value, but on a capital cost replacement they look a bit expensive.
The time to really snag bargains was last March, at the height of the bearmania [10]. Unfortunately for those who followed the gloomy consensus, such opportunities come once a decade at best.
By all means keeping reading the bearish blogs, and hear both sides of the argument. But remember many such writers will never change their tune.
They’ll either quietly start talking about stocks they bought six months ago, despite their publicly gloomy convictions. Or else they’ll disappear until the next recession and crash comes along, when they’ll try to say they told you so – regardless of the good times in between.
From the blogs
- Dying to invest – The Psy-Fi blog [11]
- Reinvesting maturing NS&I certificates – Retirement Investing Today [12]
- Stealth debasement of the UK currency – Simple in Suffolk [13]
- Unacceptable fund management fees – Terry Smith [14]
- Are you smarter than a chimpanzee? – UK Value Investor [15]
- The urban legend of Warren Buffett – Not Making This Up [16]
- Why it’s not different this time – Investing Caffeine [17]
- Money Index: A new money blog aggregator – Money Index [18]
- Stop-loss orders: Wrong tool from the wrong box – iii blog [19]
- Why money advice is bad – Bad Money Advice [20]
- Average years of retirement by country – Bargaineering [21]
- Should you be renting your home? – PT Money [22]
- Home-based business ideas – The Digerati Life [23]
- Any ETF Lesson: Part 1 – Kid Dynamite [24]
From the big sites
- ‘Flash crash’ caused by one single order – The Economist [25]
- Ireland’s bottomless bailout bill – The Economist [26]
- Back to basics in the porn business – New York Times [27]
- The BP-spill baby turtle brigade – New York Times [28]
- The market war between traders and investors – Wall Street Journal [29]
- Your ETF will not collapse – Morningstar [30]
- 12 shocking mutual fund statistics – Morningstar [31]
- How Jim Slater sieves for gold shares – Motley Fool [32]
- Is stock picking dead… – Motley Fool [33]
- …or does ETF growth leave excess returns on the table? – FT [34]
- 1 in 4 hedge fund employees leaving the UK – FT [35]
- Free money apps for UK iPhone users – FT [36]
- Handsome rewards from high-yielders – FT [37]
- Bonds funds: Time to jump ship? – Telegraph [38]
- Ten tips for lazy personal finance – Telegraph [39]
- The Great Haul of China – The Independent [40]
- What to do if the tax man writes – The Independent [41]
- Financial journalist waves goodbye to Barclays – Guardian [42]
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