Finance Friday: relativity
The weather is getting colder and wetter in the UK as winter approaches. My house is fairly warm relative to the temperature outside. Einstein knew the importance of relativity. If we were all the same height, there would be no tall people or any short people. We are only short or tall relative to others.
Returns on investment are relative too. Returns on the stock exchange have been higher relative to the returns on government bonds. The value of currencies is measured on their value compared to other currencies and commodities like oil and gold. Oil is cheaper because supply has been boosted by fracking in the US. Supply is higher relative to demand and so the price drops.
This week the FTSE 100 has been trashed and the other indexes didn’t do so good either. Institutional investors are nervous and there has been quite a lot of ‘bad news’, so demand for FTSE 100 shares dropped and so did prices. Many FTSE 100 shares were overpriced anyway as institutional investors looked for safe investments that gave them a return relative to the small returns on bonds following the 2007 meltdown of the world economies. The stock market has become a Ponzi scheme as all the investors demanded the same safe shares. They have been fleeing to safety this week and moving their money around. Many will be getting out of shares and into bonds or commodities. A safe bet at the moment is property. The FTSE 100 dropped around 5% this week. So much for the Santa effect! While some shares have improved this month like Debenhams, others have suffered. Are there bargains to be had? I think there are, Tesco seems a bargain now after this week’s dramatic fall. House builders like Barratt and Taylor Wimpey seem to offer a chance of a good return. Both seem likely to be promoted to the FTSE 100 this month and so traders acting on behalf of ‘tracker’ funds will buy into those. I’m also watching construction companies like Balfour Beatty who said it’s PPP portfolio was worth over a billion this week.
Many private investors will be waiting until after Christmas to invest and I have noticed that some prices shoot up in the new year. Shares that are unpopular now could be seen a a relative bargain in January.
You can also apply the theory of relativity to prices in the shops. Mr Kipling apple pies, made by Premier Foods used to be about 1.60 a box and a up market product. They seem to be on continuous special offer and not anywhere near as up market. The mince pies in Aldi are winning the best mince pie awards when it should be the Mr Kipling mince pies on the shelf in Tesco. Mr Kipling apple pies are 1.90 for 2 boxes in Tesco, no wonder the country has an obesity problem. Maybe it’s time to rethink strategies and see if Mr Kipling can make award winning pies and Tesco can sell them! Food has become not only more expensive, but poor quality and tasteless.
There are lots of rumours and concern about next May’s general election. The main parties seem to have no good ideas and the policies are more or less the same. Question Time on the BBC last night revealed little difference between Conservative, Labour and UKIP! The only difference was the Conservatives have been shown to be a bunch of psychopaths and sociopaths. I suspect UKIP has more than their fair share too.
I’m watching and waiting at the moment and hoping for opportunities in the new year. While Christmas won’t be too austere, I won’t be wasting money either. I’ve saved a little money through the year, but I have no intention of blowing it all at Christmas. We have to think ahead and be sensible. The government is going to spend billions on soccer, a tunnel under Stonehenge and a high speed rail (HS2) line that will cut the country in half. At the same time, they cut benefits and refuse to build new council houses. It’s madness and we see no signs of anyone trying to fix the world economy.
My credit card company sent me a text this morning telling me my balance, it will be paid off in January. Think ahead, be sensible and enjoy Christmas…
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