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Austerity a mistake? #investments

Some people are beginning to wonder if the policy of austerity favoured by many western nations is really a big mistake. The national debts are increasing, tax revenues are decreasing and people are suffering as a result.

The promises of growth and deficit reduction appear to be false promises, but those promises did give investors confidence and the FTSE 100 soared through the 7,000 barrier. Many pundits are now forecasting another crash because the promises were false. Add to this lack of confidence, a changing political scene with the  government’s strategy coming under attack from a credible opposition and investors become very nervous. They are selling and the stock market has tanked.

Another round of QE as suggested by the opposition would devalue the pound and it would fuel inflation. Is that a bad thing now? Inflation would inflate away government debt, a devalued pound would make our exports more attractive and a rise in the minimum wage would protect the most vulnerable from the effects of inflation. A big rise in the minimum wage would also cut the spend on tax credits for the low paid. In fact in preparation for a ‘living wage’ Lidl has decided to increase pay by 12% for it’s workers. We now have a situation where prices are cheaper in Lidl and Aldi and pay better than the big supermarkets and this has led to much better service. Low prices and excellent service; how will the likes of Tesco compete? No wonder Tesco’s share price has been dropping in the last few weeks. I think Tesco need to look at stock levels and the number of different lines they have. While customer choice is good, too much choice can mean some products are left lying on the shelves for months not selling. I haven’t been in Tesco for a while, but I know the service in Asda and Morrison’s is poor, so Tesco could compete more effectively with those two supermarket chains.

Investors are looking for nice safe companies that pay a dividend like Taylor Wimpey. I sold my shares in TW this week and doubled my original investment. Some safe bets will become unsafe if they become over-priced. I also sold Balfour Beatty at a reasonable return for similar reasons. I’ve reduced my risk and will watch carefully to see if I can buy some replacement shares in different companies.

The FTSE 100 together with other indices is down again and we could see them go lower. There will be more opportunities to pick up cheap shares in the coming weeks, so I can be patient and have the cash to take advantage of a nervous market.

Market makers make spreads wider in response to increased risks and I’ve noticed spreads on the AIM being widened. This also restricts trade and when there is a sell off that is a good thing. I am hopeful that my shares in Graphene Nanochem will be snapped up soon. They have been rising gradually as the company picks up orders, now they have their first order from India and everything looks good. They have advanced products and now they are beginning to get established in the markets.

I think the takeover of RSA insurance by Zurich will go ahead and that could reduce my risk soon too. Overall things aren’t good, but we aren’t looking at a market crash either.

If you would like to follow this blog, simply enter your email address in the space provided in the sidebar. You can also follow me on Twitter for updates. I don’t give advice, but if I did, I would say diversify your investments. Don’t put all your eggs into one basket!

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