My Saturday musing, followed by the links.
Weird times call for unusual observations. One of the most poignant I’ve read recently was an article in The Telegraph about jobless Americans heading to the Californian hills like their forefathers did 150 years ago:
David was sure things would work out. Then his savings dwindled and his optimism soon followed.
But, when things looked darkest, he found he had an ace up his sleeve, the same ace thousands of people have been pulling out of their sleeves in the past two years as jobs dried up all over California and something approaching panic seeped through every county of the state. David turned to gold prospecting.
He’d panned over the years as a hobby. But with the downturn came an opportunity he had never anticipated. Just as in the recession of the early Eighties, the inflation crisis of the mid-Seventies and even the Great Depression of the Thirties, David noticed that gold had not only retained its worth – it had actually risen in price.
In fact, its value had shot through the roof – tripling to more than $1,000 (£658) an ounce since the start of the recession. Earlier this month, fears of a ‘double-dip’ prompted claims that bullion could hit nearly $1,500 an ounce.
This story brings together two of the many big themes of the great slump – the hideously high level of unemployment in the US (20% by the old measure, some say) and the ever-upwards ascent of the gold price.
I’ve long been in two minds about gold. Collapsing jewelry demand and jokes about turning cats into gold against a backdrop of soaring gold ETF demand and ever-present gold buggery all smells like a bubble.
But then, the economy has been through extraordinary times, and Central Banks are employing extraordinary measures – so there is a rationale underlying the increase in the gold price.
The difficulty is there’s always a rationale for bubbles. The Internet has changed the world, the railroads did open up America, and tulips… okay, I’m not so sure about tulips.
But when is a rationale stretched beyond breaking point? That’s the real judgment.
As for the other part of the story – unemployment – this has remained stubbornly high. I wrote back in February that unemployment is a lagging indicator, but I must admit there’s a point when persistently high unemployment implies high unemployment in the months to come, too.
That said, now’s not the time to blink. An FT blogger linked too below says nobody foresaw Britain’s strong return to growth, and now GDP is flying at 1.1% a quarter. Well, I did. And as I wrote on Stock Tickle this week, the good news keeps coming.
Actually on re-reading that Stock Tickle post, I see it could come across as a bit of a brag. It isn’t really.
My central belief is that short run economic performance is pretty much unpredictable, and so a lot of it is down to luck. You’re better off buying what seems like good value to you and riding out what the economy throws at you.
I do admit to feeling a tad smug that most people were wrong and I was right, but it’s been the other way around plenty of times before (particularly on UK house prices, where I’ve been bearish for nearly a decade).
No, I’m more happy because of what independent thinking could mean for my investing performance in the long run.
Warren Buffett didn’t get rich by flip-flopping his investments with the latest groundlessly negative opinion columns. And neither will we.
Ideally we’ll be greedy when others are fearful. But above all, let’s not be greedy for fear.
From the blogs
- Strong economic data keeps on coming – Stock Tickle
- Post-retirement needs and wants – Simple in Suffolk
- Satisficing stockpicking – The Psy-Fi blog
- Mobilizing real resources – Matthew Yglesias
- Why dollar cost averaging works – Free from Broke (by Jesse)
- No positive real savings rates in the UK – Retirement Investing Today
- Are Dixons’ shares cheap? – iii blog
- Bartering your way to a Porsche – The Digerati Life
- Online retirement calculator risks – Bible Money Matters (by Mike)
- The siren’s call of passive income – Money Smarts
- My teenage son and his $1,055.20 phone bill – Len Penzo
- Are you dating a financial deadbeat? – Yahoo/Forbes
- Review of The Big Short – Investing Caffeine
From the big boys
- Partial stress (test) relief – The Economist
- Blimey that’s strong growth – FT
- UK dividend payout falls due to BP effect – FT
- Simple strategies for investing success – FT
- Homeowners urged to use debt window – FT
- UK growth reignites austerity debate – Telegraph
- Equitable compensation to be capped at £266? – Telegraph
- Invest in soft commodities … – Telegraph
- …even The Guardian says so – The Guardian
- Indian bank tops the fixed rate savings tables – The Guardian
- Why you should diversify globally – The Independent
- Wealth preservation from the Troy funds – Independent
Subscribe to get a great reading list every Saturday.