Election impact on investment strategy

[TheMotorcycleBoy]

So in conclusion, I guess if we get JC and high interest rates + inflation, then for me, when this does actually happen....if at all, then I guess I should consider steering our savings in the direction of government bonds?

Matt

Yes, but which Government's (country's) bonds?

Hmm. The UK ones I guess, since *presumably* they'll be yielding higher than the US, Jap, and Deutsch ones, whereupon I'd suffer currency change hit too.

Surely it's just a question of yields and fees, since if you peeps is saying is true, then I'll be screwed by higher inflation regardless of domain of my bonds. Still having to purchase in the UK....

Presumably, Rich, you are alluding to our own GB bonds possibly defaulting?

Matt

[scrumpyjack]

Just what I would say. I would steer clear of British Gov bonds which would be trashed by the falling pound and rising interest rates.
Maybe overseas ones (US inflation indexed ones perhaps), or go for PSN they might be a better hedge against Labour trashing the pound and the economy

[TheMotorcycleBoy]

Just what I would say. I would steer clear of British Gov bonds which would be trashed by the falling pound and rising interest rates.

I mean buy UK gov bonds after the interest rates have risen sufficiently e.g. enough for gilts to be yielding +5%.

go for PSN they might be a better hedge against Labour trashing the pound and the economy

By PSN, you mean Persimmon? We do have about 2-3% in them currently. I was seduced by the yield combined with their cash richness position, and the element of diversity into housing sector.

[scrumpyjack]

Sorry I meant Personal Assets Trust, PNL I think!

[flyer61]

It is interesting that several commentators have made the point that Labours spending plans cannot be implemented as there is just not the capacity within the economy. A couple of things come to mind if they did get the chance to enact their spendathon. One, assuming that sterling et al don't fall off a cliff then we could be looking at a boom in the UK....with a hangover to come. Giving Corbyn and McDonnell control of the money levers is like putting a kid in a sweet shop locking the door and telling them they cannot come out till they are sick as a pig. Neither of them have any experience of money and it's use. So maybe starting a business that supplies something to the state might be a good idea. Just make sure negligible capital input because the merry go round will stop at some stage. Two, which is really a follow on from one...the waste. The state will get it wrong as many times as it gets it right but the debt will still be there.

Still waiting to hear Labours (or the Torys) tax proposals. It is interesting that the above plan is based on borrowed money. I wonder if our woke, snowflake youngsters realise that Mr Market might actually want it paying back.

A return of inflation would be a complete new experience for an entire generation.

I'm sticking with a large overseas exposure by company, currency and geography. Instead of UK bonds what about a holding in Caledonia Investment PLC? CLDN

[Wuffle]

'A return of inflation would be a complete new experience for an entire generation'.

Indeed it would, but some of the elders here might remember having their mortgage debt inflated away (though not their student debt funnily enough).
It is an ill wind....

[Lootman]

'A return of inflation would be a complete new experience for an entire generation'.

Indeed it would, but some of the elders here might remember having their mortgage debt inflated away (though not their student debt funnily enough).
It is an ill wind....

That works for the government as well - inflation will reduce in real terms the amount of debt that Corbyn will inevitably take on. In that scenario UK gilts might just be the worst investment on the planet. Although might be a buy when the Tories eventually get back into power.

I too remember the 1970's. It was dire and, but for Thatcher, I would have emigrated decades ago.

[jonesa1]

Don't forget that if labour get power (either with a majority, or propped up by the Scots Nats in exchange for another in / out referendum), as well as their plans to radically change society, they're committed to renegotiating the Brexit deal (presumably to add a permanent customs union - i.e. being subject to EU regulations in perpetuity with no say in them and no scope for independent deals - a very different vision to Boris' deal), followed by a referendum to confirm their new deal vs staying in. I can't see that process taking less than a year (possibly a lot longer), during which we'd continue to have all the current issues around uncertainty, with many very loud voices complaining about BRINO and lack of respect for democracy (after all both Labour and Conservatives fought the last election with a commitment to do Brexit, what-ever that actually means). The continuing Brexit noise will make it harder for any government to focus on much else, add in the extra confusion if the Scots vote to leave GB (assuming enough of them haven't worked out how difficult that will actually be, based on Brexit, or just don't care) and it's quite possible that a JC government will be even less effective than TM's. Whether that ineffectiveness ends up being good or bad for the economy is anyone's guess.

Andrew

[TheMotorcycleBoy]

'A return of inflation would be a complete new experience for an entire generation'.

Indeed it would, but some of the elders here might remember having their mortgage debt inflated away (though not their student debt funnily enough).
It is an ill wind....

That works for the government as well - inflation will reduce in real terms the amount of debt that Corbyn will inevitably take on. In that scenario UK gilts might just be the worst investment on the planet.

Eh? Surely better than cash? Unless you are implying that the Bank will offer better rates than the potential gilt yields.

Matt

[richfool]

'A return of inflation would be a complete new experience for an entire generation'.

Indeed it would, but some of the elders here might remember having their mortgage debt inflated away (though not their student debt funnily enough).
It is an ill wind....

And some on here might also remember 15% mortgage interest rates, property price crashes and negative equity and things like MIRAS.

[Lootman]

'A return of inflation would be a complete new experience for an entire generation'.

Indeed it would, but some of the elders here might remember having their mortgage debt inflated away (though not their student debt funnily enough).
It is an ill wind....

That works for the government as well - inflation will reduce in real terms the amount of debt that Corbyn will inevitably take on. In that scenario UK gilts might just be the worst investment on the planet.

Eh? Surely better than cash? Unless you are implying that the Bank will offer better rates than the potential gilt yields.

Depends. Cash can only lose real value. Bonds can lose both real value and nominal value in a rising rate and inflationary environment. And if you bought that gilt above par, as they nearly all are at the moment, then you can lose a lot even if you never sell.

[ayshfm1]

Today's youth has never seen things that we all reguarded as par for the political cycle. I for example have always given mortgage reduction a priority, even though in the last few years that hasn't been an optimal use of funds. Because controlling disposable income by increasing interest rates was standard policy in the recent past and hence paying down debt mitigates the ability of the incumbent chancellor to dictate my spending.

Corbyn will bring it all back with a monumental bang and part of me thinks it would be good for the poor dears. They've never had a rotten day in their lives compared to what the bulk of us have experienced and they're poorer for it, they need some character building and Corbyn would hand that down in spades.

So if he wins, it'll hurt, but the entitled millenials will learn some damn good life lessons we've collectively spared them.

[xeny]

Do many millennials have mortgages though? I thought the consensus was they couldn't afford house prices, so they rent.

[Itsallaguess]

Do many millennials have mortgages though?

I thought the consensus was they couldn't afford house prices, so they rent.

From landlords with mortgages...

Pain begets pain....

Cheers,

Itsallaguess

[TUK020]

So in conclusion, I guess if we get JC and high interest rates + inflation, then for me, when this does actually happen....if at all, then I guess I should consider steering our savings in the direction of government bonds?

Matt

Yes, but which Government's (country's) bonds?

Counter-intuitively, when you get a transition from low inflation to high inflation, cash is a good place to be.
You want to sit out the 're-pricing' of bonds until they have re-established a yield commensurate with the new inflation expectations, and only then buy in to bonds.

[Wmnr]

I'm not sure if this is slightly off-topic but the times when we last had bad Labour governments with high inflation it was in the 70s (yup I was around then!), wasn't one of the big causal factors in those days the strength of the British Labour Unions? Remember that's what my Dad put it down to, the unions wanted more, and their rises inflated prices, and that caused a "vicious circle" of wage and price rises. But now have not nearly all of those unions been destroyed? (i.e. by Thatcher).

In other words, the point I'm trying make (not as a die-hard socialist I might add!) is that to form an association between any possible JC government with high rates of inflation seems to miss this key difference between then and now. Is that a reasonable critique?

Have you forgotten about the minimum wage? A labour government could increase it significantly, causing inflation. They do like spending others people's money

[TheMotorcycleBoy]

So in conclusion, I guess if we get JC and high interest rates + inflation, then for me, when this does actually happen....if at all, then I guess I should consider steering our savings in the direction of government bonds?

Matt

Yes, but which Government's (country's) bonds?

Counter-intuitively, when you get a transition from low inflation to high inflation, cash is a good place to be.
You want to sit out the 're-pricing' of bonds until they have re-established a yield commensurate with the new inflation expectations, and only then buy in to bonds.

At last! Someone finally gets my point, thanks TUK.

So if all the suggested ifs actually do happen, i.e. JC gets in, high inflation and IRs return, the millenials get their comeuppance etc. Then once the equities of UK represent dishevelled entities that JCs cruel policies have shafted, and the market is flooded with under par high yielding gilts then I assume gilts, provided we dont default, would be a reasonable place to consider putting some of ones monthly investments, whilst such conditions persist?

To be honest, I'm writing as the devils advocate here. Whilst its likely that an underpar gilt may temporarily yield more than a ULVR share in these fearful predicted days, its also likely that good equities maybe underpriced and their values surge once a new administration comes to replace JCs. Unless of course Jeeza has banned elections and replaced Parliament with the Politburo.

Matt

[richfool]

With both Labour and the Conservatives trying to out bid each other, with their promises of greater public spending and thus greater government debt, it would suggest that inflation will again rear its ugly head, with all that entails. However, quite how that fits together with the world (growth) generally slowing down and maybe heading towards recession, I am not sure.

[jonesa1]

Unless of course Jeeza has banned elections and replaced Parliament with the Politburo.

Matt

There's no need to ban elections, just make sure you always win them - e.g. extend the franchise to 16 year olds (you'd be amazed how much of the party propaganda my nieces, in their 20s, have swallowed), post-election transform to born-again remainers, retain free movement and allow EU nationals to vote. Marxists (and other extremists) usually try to game the electoral system once they are elected, I wouldn't expect this lot to be any different.

[flyer61]

richfool my thoughts for what its worth...

a local boom in the UK should do it and if you throw in a lower currency the recipe is set. As mentioned previously our economy does not have the capacity for what Labour proposes.....ergo prices will go up. Try finding a brickie when the government will pay them £50 an hour. If you want it you will have to pay the new higher price. Mr McDonnell will be a man in a hurry. Most socialists like to be loved, McDonnell will want to be beating his chest and showing his acolytes all the things he has built. There will be white elephants galore....oh and corruption.

Mrs Sturgeon plays a mean hand and given the desperation of Labour to get it at any costs I can see her propping him up.....maybe the slight tick down in STG these last few days is a nod in that direction.