Hey friends,

Apologies for my absence the last few weeks. Another bout of covid hit us one by one so there's not been much to write about. On the bright side the enforced sofa time has given me some space to think about what's been happening in the economy and world of investing. If that's not your cup of tea there's plenty further down on some garden jobs I've completed and I show off our 'new' BBQ 😀.

💰 Money

In the year that I've been writing this newsletter I've often delved into finance and economics and even made a prediction or two. For this piece I thought I'd take a look back at each and see how those predictions are stacking up and see what's going on in various markets right now.

Property

My first newsletter was about property prices. At the time, I felt compelled to write it because I thought the narrative about an impending dip was all wrong. So far that piece, based on Fred Harrison's property cycle, has held up well with prices having risen up a further 9.8% in the last 12 months (data up until March).

When you compare that with the inflation figure of 9.1%, this rise in property prices seems less remarkable - property has more or less gone up in price in step with the thousands of goods used to calculate inflation. Furthermore, we take it as given that if wheat and transport costs go up so will the price of bread so shouldn't it be the same for property where the ingredients - building materials and labour - have increased markedly? This factor doesn't always hold true and perhaps I'll pen a piece on it soon but with these two factors combined perhaps we shouldn't be surprised at the rise.

What is remarkable is how solidly property has held up against other asset classes.

But where do we go from here? The most recent data released conflicts. Some show the rise is speeding up and others slowing down (amusingly, both from the Guardian, dated 1 week apart). But neither show a decrease in prices. I think it's much harder to say what will happen now than it was a year ago as the increase in mortgage rates is a strong headwind. That said, the job market is strong, the lending market is competitive and most will be locked into low rates anyway (as we did with our mortgage recently) so even if we enter a recession, and that's a big if, there's unlikely to be enough forced sellers to upset the supply side.

I expect the areas of the country with the best affordability to continue to outperform (north of England, Wales etc). The investment case, which I explored here and had got weaker due to higher prices has held improved slightly as rents have increased more than property prices. What makes me a bit nervous is the rather manic behaviour that's been on show - up and down the country there are multiple offers on the first day of viewings in sealed bids for over the asking price. This kind of mania is exactly what you'd expect before a crash. Overall though, I see no reason to doubt Fred's cycle at this point. I expect further growth, just a bit muted compared with what we've seen the last couple of years. That may mean it falls behind inflation so an increase in nominal terms would represent a fall in real terms.

Interest Rates

In my more recent piece on where I thought interest rates are going I concluded that they would likely rise to help combat inflation but probably not significantly. Since then, we've already had 3 hikes of 0.25% each to now reach 1.25%. However this looks pretty meagre when compared with the history of UK interest rates:

The last time inflation (graph below) spiked as high as it is now (1990) interest rates closely followed them and rose to 15%.

So clearly the same is not happening this time. I skimmed the minutes on the last BoE meeting and only 3 of the 9 members voted for a larger rise of 0.5% so I think we can conclude that they aren't that serious in bringing inflation down to their targeted 2%. Additionally a note at the end of the minutes states that £3.2billion paid in interest and redeeming bonds (out of £847 billion - a drop in the ocean) will not be loaned out again - but there's no mention of the BoE actively selling its assets. i.e. engaging in quantitative tightening.

The one pro for raising rates I mentioned in my earlier piece was that it strengthens our pound and I believe this has come to the forefront. The day before the last rate rise, the Federal Reserve over in the US raised rates by 0.75%. Since energy is traded in dollars and its increased cost is a large cause of inflation we are hamstrung by whatever the Fed does. If they raise rates we need to too for our pound not to fall further, though it's not working out well so far. Of course we're not alone in this (the euro has fallen to a 20-year low against the dollar for instance) but it does go to show how much power the Fed has over the world economy by virtue of having the global reserve currency.

Overall I stand by my expectation for interest rates to remain low. Forecasts predict they'll peak somewhere around 2-3.5% which sounds about right and would be low historically speaking and I'd wager it to be on the lower side of that range. The question is which will fall first, inflation or the economy?

Stocks

Year to date:

S&P500: -20%

NASDAQ: -30%

FTSE All Share: -8%

FTSE 100: -4.5%

NIKKEI 225: -11.5%

DAX: -19%

Global All Cap: -10%

Yikes!

My piece on investing in the stock market was about as comprehensive as I could have made it. To cut to the chase I have no plans to change to the approach laid out there. This bear market was expected to come along at some point, as will others in future.

To put a bit more meat on the bone and figure out what's going on right now, the general consensus is that the growth stocks (think tech stocks) which promise jam tomorrow have suffered due to higher inflation figures. A dollar today is worth more than it is tomorrow so value stocks (e.g. utility companies) with strong cashflows (jam today) are holding up better. Many of these companies might also weather a recession better as paying your energy bill doesn't fall under discretionary spending.

This is apparent when looking at the various indices above with the tech heavy NASDAQ having fallen furthest.

Have I fully mastered the contrarian outlook? Not quite. It's still a little dispiriting to see my investments drop but I do fully embrace the lower buy-in points and therefore the higher future returns the current market presents.

I still try to challenge the strategy I follow (buy regularly and highly diversified) but so far I see no reason for change. For 99.99% of investors, success comes down not to market knowledge or financial competency but holding your nerve.

In fact, I'd sum it up as:

a GCSE in maths

+

a little knowledge of the systems and tax wrappers

+

a friggin' PHD in psychology!

You've got to occupy some weird middle ground of being risk-averse enough to not blow all your income immediately and risk-taking enough to put it to work for the long term. I guess that's why most people don't invest outside their automatic workplace pension.

The small part of me that likes a gamble has eyed up stocks like Royal Mail, Ocado or Netflix which have shed 50% of their value and might possibly have been oversold. But then I remind myself that there's a huge industry that analyses these companies on a daily basis and I can't hope to outwit them. Just because a stock traded higher in the past doesn't mean it will return to that level anytime soon.

Book Recommendation

As you'll know I'm not a big book reader. Usually a blog post is enough to bring up dozens of threads of curiosity which I'll spend the next hour pursuing on google. However, I made an exception recently for one written by a friend which takes on the herculean task of explaining our monetary system.

Here's what you'll learn:

• The history of money
• The unprecedented financial experiment of fiat currencies that most of us have lived in all our lives
• What really drives inflation
• How money is created and who creates it
• The indebtedness and inequality this has created
• What might come next
• How to combat inflation through investing.

If you have even a passing interest in economics or investing, I'd highly recommend picking up a copy. For such a complex subject Rob does an impeccable job of keeping it entertaining and easy to understand.

Once you've finished this book, if you really want to challenge yourself I'd recommend going on to read Ray Dalio's LinkedIn posts where he points towards a roughly 50-75 year debt cycle, the last of which he believes started in 1945 👀.

Crypto

And all this brings us back to the conversation I had with Barney Whiter, aka The Escape Artist, where we also talked about the history of money, the break-away from the Gold Standard and the massive amount of money creation which Bitcoin, with its upper limit of 21 million units, could act as the antithesis to.

Now, crypto has taken an absolute beating over the last few months and bitcoin hasn't been spared. One could argue it's not the hedge against inflation or 'digital gold' it was cracked up to be...though it's still up 100% up on where it was 2 years ago.

The predicted 'crypto winter' has most likely arrived and if things play out as they have before could last until the next bitcoin halving in May 2024 when the amount of bitcoin rewarded for mining halves. Maybe. Crypto is hard to predict and I still feel out of my depth with it.

Arguably my very small holding could be described as di-worse-ification. It's an added complication which either way is not going to be make or break but it is enough to keep me interested in the subject.

I happen to think the argument for bitcoin is stronger than ever, even if it's price isn't. The way I think about the rest - the 'alt-coins' - is they'll either work or they won't but I suspect the majority to fall by the wayside. As Barney concluded, it's perfectly okay not to own any of it.

🍖 BBQ

I feel like this group would enjoy some BBQ chat? Well the other week we were lucky enough to pick up a great one from someone we know who was giving it away for nothing.

I'll throw out an opinion - gas BBQs are cheating. If you're not struggling to get the fire started or stressing about your sausages charring it's not the real deal. With the lid closed it acts like an oven so you get both the sear on the outside and the middle cooked to perfection. I'm a bit in awe of it, even if it is cheating.

It came with a cover and I'll wheel it into the garage for winter but maybe I should shelter it under something like this:

Yes, this is very much the Diderot Effect in action. Perhaps I could build one but I'm not sure it would be worth the hassle. Anyway, if you've got a similar BBQ and have any tips for a new chef, let me know.

🔒 Gates

The double gates I made a couple years back needed some TLC. To stabilise the bottom I had attached the monkey-tail bolts but never got round to installing the square plates in the ground.

Rather than drilling holes for the bolt and for the 8 screws I simply knocked out the surrounding concrete with my SDS drill on chisel mode (too small an area to warrant getting out the Titan breaker) then re-cast the concrete and inserted the bolts and screws. It worked a treat. Quite a nifty hack I thought.

I still feel the gates are missing something - perhaps one of those timber barricade things across the centre like you'd see in Middle Earth to keep the orcs out.

🚰 Rainwater Harvesting

Back to my on-and-off again garage project: With the shed has gone I could make something more permanent for collecting the rainwater from the roof. I thought a mega tank type butt would be cool but at £300, that's too much.

We had a couple spare butts knocking about the garden so I elevated them using some of the many rocks and stones I've been storing at the end of our garden.

To hide the side of the garage where I store random stuff - pallets, a plastic table and chairs etc - I ripped some trellis strips from the bathroom's floorboards then planted a clematis that will hopefully spread over the gap and across the face of the garage.

To get water into the butts I considered a diverter but the simpler solution was to have the down-pipe go directly into the top of the first butt.

I then bought a linking kit to get the water to go into the second butt and since this was successful I added the third butt butt, which never collected much water from the greenhouse, to make it three.

I'm not convinced the leaf guards on gutters do that much to prevent dirt getting in (as below). Instead I've put a net over the first butt to keep leaves out (above). It might work.

A very low cost little project. We're yet to get on a water meter so with this set up and soon to be changing to showering over bathing now might be the time -though it is nice not to worry about water consumption.

Next step is the garage window which rusted beyond saving. It's been a struggle to find a second-hand one that fits so it may have to be new.

🌿 Hedging

It's hedge trimming time and my first proper go with the DeWalt hedge trimmer I bought last winter. This hedge has about every kind of plant in it and it handled them all with no cord to cut through this time. Would recommend 👍

👋

I'll finish off with a nature pic. I could hear some clumsy flapping in the branches above the garage and upon investigation found this fledgling red kite looking inquisitively at me :)

Next week, bathroom update!

Hit "reply" if you've got any comments on this week's newsletter – otherwise I'll see you next time. Have an epic week :)

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P.p.s. You can find all previous newsletters here.