Of boom and bust

mwpt

http://www.telegraph.co.uk/finance/economics/12083682/Is-the-whole-theory-of-secular-stagnation-a-hoax.html

Mr Borio swats aside the standard Fed objection that it is impossible to discern a bubble, asking whether it is really possible to discern the output gap or the "NAIRU" point of full employment, yet the Fed acts on these indicators.

He accused central banks of an "asymmetric" bias for the last quarter century. They let asset booms run their course, but throw the kitchen sink at each downturn. The result is ever-rising debt ratios, making it ever harder to right the ship again. "This can contribute to a kind of 'debt trap'. Over time, policy runs out of ammunition," he said.

But at least property speculators got rich.

Generali

I'm rather embarrassed to say that AEP now agrees with the point I've been making on here since I first joined: a bubble means that investment has been misdirected which means that when the bubble bursts, or at least becomes lest bubbly, that investment gets torn up and flushed away.

cells

Generali wrote: »

I'm rather embarrassed to say that AEP now agrees with the point I've been making on here since I first joined: a bubble means that investment has been misdirected which means that when the bubble bursts, or at least becomes lest bubbly, that investment gets torn up and flushed away.

Why do you think that?

What was the flushed away investment in the last recession?

It was supposedly a housing bubble so where are all the excess homes sitting idle? Ireland was put up as a prime example of all this malinvestment but five years after the bubble the talk was of how Ireland can tackle its shortage of homes to rent and buy

Generali

cells wrote: »

Why do you think that?

What was the flushed away investment in the last recession?

Mostly investment banking. Hundreds of thousands of jobs have gone in the Square Mile alone. The bubble was in the financing of housing not in housing itself.

princeofpounds

The bubble was in the financing of housing not in housing itself.

Sort of... I think this statement only holds given where interest rates were moved to by world central banks.


It would have been a different story otherwise (which indeed relates to the original point of the thread).


I do wonder if there are any economists that discuss central banks targeting debt burden in some way - probably.

Generali

princeofpounds wrote: »

Sort of... I think this statement only holds given where interest rates were moved to by world central banks.


It would have been a different story otherwise (which indeed relates to the original point of the thread).


I do wonder if there are any economists that discuss central banks targeting debt burden in some way - probably.

Central banks haven't targeted debt burdens in the past but increasingly that's the future.

happylucky

Just out of interest, if you were looking to invest a substantial sum (moving out of cash). Where would you put it? Decent timeframe of say > 10 - 15 years.

I am really struggling to know where is "safest" to invest right now.

mwpt

happylucky wrote: »

Just out of interest, if you were looking to invest a substantial sum (moving out of cash). Where would you put it? Decent timeframe of say > 10 - 15 years.

I am really struggling to know where is "safest" to invest right now.

That is the problem I am having. I divest mostly into cash in late last year but in the last few days had a rethink and went partly back into shares. I'm now wondering if I was too hasty, though I realise this is silly thinking, I should be in for the long haul.

I have a fair chunk of equity in housing already, in the form of my own house. Shares and cash is where the rest is. Precious metals? Been on a bear trend for a long time and still not sure we've seen the bottom of this. Bonds?... bleh.

Unfortunately, it does seem as though land is one of the few investments going that is still yielding well and experiencing capital growth. At least, land in the right areas.

mwpt

Anyone buying FTSE today?

antrobus

mwpt wrote: »

That is the problem I am having. I divest mostly into cash in late last year but in the last few days had a rethink and went partly back into shares. I'm now wondering if I was too hasty, though I realise this is silly thinking, I should be in for the long haul...

Buy when there is blood on the streets.:)

Generali

happylucky wrote: »

Just out of interest, if you were looking to invest a substantial sum (moving out of cash). Where would you put it? Decent timeframe of say > 10 - 15 years.

I am really struggling to know where is "safest" to invest right now.

Vanguard S&P 500 ETF would be my choice as you have the time to absorb some short term loss for longer term gain.

Betting on large US companies has been a great idea for the last 80 years, pretty much.

Beyond that, diversify. It really is the only free lunch. If you don't want to bet on the US buy a MSCI World ETF as second choice. That basically buys everything.

Bonds are a lousy bet (last time I looked 1/3 of the benchmark that we use at work for fixed income had a negative yield, i.e. you pay to lend the company or Government money) and I'd be wary of property for similar yield reasons.

Infrastructure looks expensive on the face of it but there has been underinvestment in that sector for decades and we're going to have to pay investors a decent return in order to attract funds into that asset class.

Peer to peer lending could be interesting. Aussie firms pay out 8+% to lenders. High risk though (IMHO).

Avoid?

Oilies and miners. Also junk bond funds as they will get hit by smaller oil companies and servicing companies going bust. Oil companies and miners going bust will be a theme of 2016 I think. Glencore might be a good short. RIO and BHP will be raging buys at some point but not right now I think.

As always, time will tell.

ETA: Heck, I forgot to add. Avoid FTSE ETFs as they will get hit by the mining/oilies bust IMO and definitely avoid synthetic ETFs even if they're cheaper than ETFs underwritten by proper assets, not a basket of crap that the investment bank picked up on the tube that morning.