Bubbles and cycles.
I won’t pretend to be an expert on the world economy, but there does appear to be bubbles and cycles. Cycles when the Chinese Yuan is strong and then a cycle when the Yuan is weak. Do these cycles just happen or are they engineered by governments? The answer this week, was the value of the Yuan being cut by the Chinese government. Bubbles too can be engineered by governments, especially property bubbles, like we see in London now.
Bubbles and Cycles
China has signalled to the world that it wants growth based on exports. What can we do? Our London property bubble is based on low interest rates, raising them might trigger deflation. With imports getting cheaper from China deflation is a possibility anyway. Is it time to raise interest rates? I don’t think so, not unless the government is going to devalue the currency with more quantitative easing. At the moment it doesn’t look like the government is going to try to inflate away some of the massive depth, so anything can happen.
The uncertainty has depressed the stock market just lately. My overall return is down to 6%, still better than the bank, but low compared to what I’m used to. I still think I’m over-exposed to the AIM market, buying more in that market in retrospect was a mistake. Monitise has been a big disappointment, but maybe it’s now hit bottom and will make a recovery. Graphene Nanochem in theory has lots of potential, the technology is good in the long term. Similarly Solo Oil has lots of potential and it’s one that’s at least in profit. The same can be said of Verona Pharma which has been bouncing up and down of late. It’s 4.75 this morning, but has been as high as 6p.
The fortunes of some companies are taking time to recover. RSA is doing better and still a takeover target for Zurich. Premier Foods is making slow progress and could be a takeover target too. Taylor Wimpey is my best performer now, paying nice dividends and is also a double bagger, doubling my investment from 100.38 when I bought to 204.4 today. They are obviously benefiting from the bubble in the property market. I can see TW going higher until the long awaited interest rate rise starts bringing the property market back to some normality.
So the future for world economics looks like more bubbles and cycles. I think share prices will rise generally and the FTSE 100 will top 7,000 again on the next cycle. How will that be engineered? I’m sure they’ll think of something!
Even though my portfolio is out of balance with too many AIM shares, I did the research and so even the ones losing money I expect to come good eventually. Monitise actually looks cheap now considering they have a lot of expertise in the area of mobile apps for trading. They could be a takeover target as well.
That’s all for this week. You can follow this blog by simply by adding your email address in the space at the top of the sidebar. You can also follow me on twitter for updates.