Bubble territory for S&P 500 - where to go next

[1nvest]

There’s a reason the FTSE 250 is tanking and it’s because some larger quality companies that used to be heavyweights in the index e.g. Games Workshop and Diploma have been promoted to the FTSE 100 and you’re left with a heavy weighting to interest rate sensitive REITs, Infrastructure Funds and Fund Managers plus a sizeable exposure to UK Retailers that have all tanked Year to date.

So more reflective of the broader UK economy

Wouldn't be surprised if the likes of Games Workshop opted to move over to a US listing/domicile.

[1nvest]

Year to date (to 9th Jan ), US dollar +2.2%, gold (SGLN) +4.6%, silver (SSLN) +7.1%

Since the UK ended Pound/gold convertibility in 1931 (from 1932 onward) 'cash' of 50/50 hard US dollar bills and Precious Metals (50/50 gold/silver) would have maintained its UK RPI purchase power to recent

Year to date 50/25/25 USD/Gold/Silver +4% (nominal).

Could very well see that rise IMO (Labour drag), 'cash' buying more in RPI adjusted terms.

It's silly to keep hard USD bills stuffed under the mattress however. Yes US stocks have been uplifted by the likes of the Magnificent Seven that could be in a bubble (or maybe not), but even a conservative 33/67 stock/bond asset allocation might hold through a 'correction' if such occurs reasonably OK, perhaps better than hard dollars alone.

Silly maybe, but have you tried exchanging USD bills, or indeed Euros or any other hard currency, in the UK lately? It's becoming quite difficult to exchange the kind of amounts you would need to make hard-currency hedging worthwhile. Online banks such as Wise, whilst offering reasonable exchange rates, only handle electronic transfers. Obviously, you get terrible exchange rates if you use normal tourist style exchange bureaus to exchange cash. Some high street banks offer foreign currency accounts, but have recently started putting restrictions on the amount of cash that you can pay in over a a year, all in the name of anti-money laundering, anti tax evasion and prevention of other criminal activities**. Furthermore, various countries, including the USA restrict the amounts of cash that you can legally carry in and out of the country.

Recently, my local bank, wrote me a snotty letter calling in to question some foreign currency transactions that I had made. When I went to the bank to explain and told them politely to mind their own business, they said that they didn't want to pry, but were under pressure from "the authorities", aka Big Brother, under threat of fines if they did not report suspicious activity. It seems that scammers, criminals, including people smugglers, can go about their business unimpeded, but the rest of us had better watch out.

Paranoidly,
S

** and maybe even one's political orientation. cf the scandal last year of Nigel Farage's Coutts bank account.

Many in person gold dealers will prefer to pay for any of your gold via a electronic payment, which could be to your credit card account number, or into something like WISE from where the credit card bill payment is made. As might a UK based USD bank account accept you walking in to deposit $2.5K periodically from where -> Wise -> credit card or suchlike.

At retirement, home owned, liquid wealth split 50/50 initially between physical gold and USD currency/notes. Spend using your credit card(s) and each month pay that off with whatever of USD or gold is above 50% weighting/value at the time. No other rebalancing required, just left as-is. Yes a extreme - but for demo/description purposes.

Maybe £10K/year state pension, another £7.5K/year in tax exempt shared home lodger income, rent covered (imputed rent benefit) that might otherwise have cost £2K/month, maybe a £15.5K/year occupational pension, combined £57K/year and any additional spending covered by your credit cards where you DIY 'dividends' to pay that off each month (spending some USD or gold) - say another £2K/month (total yearly spend of £80K/year type lifestyle. Backed by a paper trail of when/where/how much $'s you originally withdrew, and where/when/how much gold you originally lump sum bought. In the case of both having withdrawn and repay into the same USD bank account you could even arrange to have the initial withdrawal of a large number of $'s having each notes serial number recorded, so when paying back in again the bank could reference/cross check that as their anti money laundering confidence factor. For their know-your-customer factor, once your retirement approach were established ... pretty much known to the bank that your profile involves holding gold and USD hard currency (old custodial style rather than modern day depository style) then so also might that flag be lowered. Whilst many nowadays trust depository style, where cash you deposit into a bank becomes the banks money; Where credits of a brokerage and buying shares has those shares registered in the brokers name, not yours; Not everyone is so entrusting. Retail custodial banks nowadays are pretty much non existent, as is buying shares in your own name pretty much extinct (still possible but is being phased out completely). As the WEF say ... you'll own nothing and be happy - and generally most seem happy with that, but not everyone.

[kernelthread]

... liquid wealth split 50/50 initially between physical gold and USD currency/notes.

...another £7.5K/year in tax exempt shared home lodger income

Keep a load of gold coins and bricks of USD notes under the floorboards and have a lodger. Hmmm.... sounds like a plan...
At least the prime suspect will be obvious when it all goes walkies.

[1nvest]

... liquid wealth split 50/50 initially between physical gold and USD currency/notes.

...another £7.5K/year in tax exempt shared home lodger income

Keep a load of gold coins and bricks of USD notes under the floorboards and have a lodger. Hmmm.... sounds like a plan...
At least the prime suspect will be obvious when it all goes walkies.

Like custodial banking the safety of security boxes in banks have also been compromised. The greatest thief is .. the state. Safety deposit boxes have been raided by the state and as such can no longer be trusted. As ever diversification is a risk reduction means. Leave a entire stash under your bed and of course there's a probability that you could lose the lot.

Just run a quick backtest ...

All 30 year periods (i.e. retirement years) since 1896 (calendar year granularity)

£1M wealth at retirement split thirds each home, USD, gold

30 year 1% SWR i.e. £10K drawn at the start, uplifting that £10K amount by RPI inflation as the amount drawn in subsequent years. Spending only from gold or USD (whichever was the higher at the time).

100% success rate where in the median case you ended with a little over 100% of your RPI inflation adjusted start date wealth still available at the end of 30 years (on average where two thirds of that wealth were in the home value, 22% in gold, 12% in USD).

No rent to find/pay. Perhaps another £10K in state pension (£20K/year disposable). Perhaps a live in lodger (27.5K/year disposable). Maybe another £12.5K in occupational pension (£40K/year disposable). Comparable to perhaps £50K/year if instead you rented.

Came with volatility. In the worst case you ended with half the inflation adjusted wealth remaining. In the best cases you ended with twice the inflation adjusted wealth. (Where 'you' is more inclined to be your heirs). Since WW1 the worst case ended with two-thirds left remaining. For many, retiring at 65 and living another 30 years to 95 is a remote prospect. For those that do and a number will probably end up in a care home where that is all inclusive and funded out of the sale of their home.

And where you're holding hard USD bills as part of that. If instead they were invested in US stocks/whatever then whatever additional nominal gains that made would have added value/capital.

To the point and is the USD in a bubble, I suspect not, more a case of just the S&P500 potentially being into bubble territory.

[simoan]

There’s a reason the FTSE 250 is tanking and it’s because some larger quality companies that used to be heavyweights in the index e.g. Games Workshop and Diploma have been promoted to the FTSE 100 and you’re left with a heavy weighting to interest rate sensitive REITs, Infrastructure Funds and Fund Managers plus a sizeable exposure to UK Retailers that have all tanked Year to date.

So more reflective of the broader UK economy

Err. No. Sounds like the kind of misinformation a journalist would normally come out with. Who’d want direct equity exposure to the UK economy right now anyhow? There’s being contrarian and then there’s just plain wanting to lose money!

If you did a look-through of the 25% weighting represented by Closed End Investment Companies (Including things like JGGI, JAM and PCT) you’d probably find it was weighted more to the Mag7 than any domestic UK company. Of course, by far the biggest single company weighting in the FTSE 250 is Carnival, the international cruise ship company… hardly emblematic of the UK economy.

[1nvest]

So more reflective of the broader UK economy

Err. No. Sounds like the kind of misinformation a journalist would normally come out with. Who’d want direct equity exposure to the UK economy right now anyhow? There’s being contrarian and then there’s just plain wanting to lose money!

If you did a look-through of the 25% weighting represented by Closed End Investment Companies (Including things like JGGI, JAM and PCT) you’d probably find it was weighted more to the Mag7 than any domestic UK company. Of course, by far the biggest single company weighting in the FTSE 250 is Carnival, the international cruise ship company… hardly emblematic of the UK economy.

The Investment Trusts add in additional diversity, including as you say some Mag7/US exposure.

Carnival is 27th largest according to https://www.londonstockexchange.com/ind ... ents/table doesn't even appear in the first page (of 20) 2.44Bn market cap (largest is Polar Capital Technology at 4.17Bn market cap).

It's rare for single stocks to be 2% of the index, whereas in the FTSE 100 the largest might be 10% of the index. Feeding in/out of both the top/bottom is a good quality IMO, tends to keep things more towards equal weighted - that historically has tended to relatively outperform, and in smaller stocks (that also have tended to relatively outperform). A better index - in part reflected by it having historically outpaced the FTSE100 index.

I agree that that the FTSE250 (UK) is cheap and gloomy, however that's reflected in the price and mid to longer term from present levels could turn out to rebound/recover more strongly than others, a potential buy low opportunity, but where as ever what is cheap today can become even cheaper tomorrow, which seems the more likely given the current Labour government.

EDIT : https://www.ishares.com/uk/individual/e ... rough=true indicates Carnival as being 0.85% weighted. The largest (Polar Capital Tech) is 1.41% weighted.

[simoan]

Carnival is 27th largest according to https://www.londonstockexchange.com/ind ... ents/table doesn't even appear in the first page (of 20) 2.44Bn market cap (largest is Polar Capital Technology at 4.17Bn market cap).

EDIT : https://www.ishares.com/uk/individual/e ... rough=true indicates Carnival as being 0.85% weighted. The largest (Polar Capital Tech) is 1.41% weighted.

Yes, this looks like some kind of anomaly with the market capitalisation used by the Sharescope heatmap, probably caused by the weird dual listing of Carnival PLC (CCL). For some reason it uses the full US listed market capitalisation of £23bn. Anyway, the point stands about the make up of the index.