Active investing is on the wane and the only surge in demand is for commodity-based investments
The great investing public has lost confidence in the stock market, and no wonder. Over the last three years, they diligently salted away their annual £7,000 allowance in their ISAs, only to watch one third of their hard-earned dosh evaporate.
Now most are not even interested in the idea that there are great bargains available. They would rather go and buy something they can eat or wear, or trawl the high street sales. After a number of blunt warnings, some are prepared to worry a little about property prices, although from the buy-to-let mortgage figures just released, you wouldn't think it.
If there is any interest in active investing, it is in gold. Shooting through a long held resistance level of $330/oz, gold is the new black. Everyone is suddenly interested in South African mines and gold proxy stocks. Gold funds and other commodity type investments are in huge demand.
A few nitpickers are asking why the Bank of England last year decided to sell most of its gold reserves at the lowest price for 30 years. The answer is that Governor Eddie George thought, and still thinks, that talk of gloom and doom is overdone. At the time, people believed that paper with a promise written on it was worth more than a heavy handful of the yellow stuff. Real assets were considered rather an old fashioned concept, and Sir Eddie was keen to be a very modern banking monarch.
Shortly after the fire sale was completed, gold revived on the back of an unguarded remark from a US central banker, who reminded everyone that governments could just print money to get out of trouble. We all knew this to be the case, theoretically, but we wanted to believe that this inflationary option had been finally and forever discredited.
Governments, however, prefer to be more concerned with consumer spending than their own debt mountain, cautioning private investors of the danger of bingeing on credit. In due course they will have to admit that the punters must pay for public excess as they pay for private excess, but that is still some way off.
In the UK, the Financial Services Authority has warned of rising levels of personal debt and an unsustainable savings gap. This feels harsh to those using income to service debt, which they consider to be the same thing as saving. (Incredible, but true. It comes down to semantics. If financial education was compulsory at A level, instead of options like hairdressing, we would all talk the same language, and repaying credit would not be confused with net savings.)
However, I digress. The UK's house of cards might yet remain intact, if property prices just soften instead of collapse, and there are no nasty jumps in unemployment. Unfortunately, news from the corporate front is chilling. For the eighth successive quarter, demand for goods and services is falling. Some 74% of firms are now working below capacity, the highest level since 1983. Export orders are falling at their fastest rate for a year and the decline in actual exports is at its most rapid since July 2000.
The Confederation of British Industry expects 42,000 jobs to be lost to the manufacturing sector in the next three months. Stores are closing, dividends are dropping, and investment is stalled. Cutting interest rates might check the downward spiral, or it might not. Treasuries, gilts, sterling, dollar or euro, anyone? No thanks. Corporate bonds? Another time. The ghost of Julian Baring has arisen. Pass the Krugerrands, please.
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Failure to engage