August 2024
- I start to write this before the Federal Reserve and the Bank of Japan (BOJ) announce their decisions on interest rate increases or decreases. Whilst the BOJ wants it seems a weaker currency if this continues it may do more harm than good. The Federal Reserve may need to reduce interest rates – it was interesting to see that for the first time in a long time McDonald’s was selling less and less of its fast food to the American Public and I don’t believe this was down to Americans changing their eating habits.
- In the UK overall inflation has stayed at the target rate of 2% which is very good news, but the Bank of England boss will be taking notice of our stubbornly high services inflation of 5.7% and so he may not choose to reduce interest rates just yet especially as the UK economy has turned a corner and there are pay rises baked in for public sector jobs.
- The Renters Reform Bill may include a ban on “no fault evictions”. MoneyWeek confirms there were 2682 of these evictions from January to March this year. This will prevent landlords ending leases without having to give a reason for doing so, so another nail in the coffin for private landlords.
- China’s economy continues to be in deep trouble, so it is good we continue to avoid any direct investment in this jurisdiction.
- The fixed interest market is still offering good opportunities for investors and this year has the potential to make up for some of the lost ground over the last two years. I notice the yield on a UK 10-year Gilt bond is now under 4%, this is very good news as our portfolios hold this type of investment.
- Oil prices whilst having risen from the turn of the year there is very little change in the price when viewed over 12 months.
- Gold has done well; 20% plus over the year which is odd given where interest rates are right now. As interest rates come down and the dollar weakens, in theory, the yellow metal should go further but this may be baked in, and the price will fall if interest rates come down.
- What are we getting right:
- Staying away from direct investments in China.
- Selling low and buying low.
- Getting into Japan early (at least a year ago the rest are only just catching up).
- Invested in Tech and staying with the US in general.
- Not selling off our Fixed Interest exposure and watching their value return.
- Watching out for cash accounts and short-dated bonds ceasing to offer attractive levels of return and what to do when this happens.
- What did we get wrong:
- Investments in Infrastructure and we took too long to move away from Agriculture; however, these areas are being corrected.
- Our portfolios are holding up well because:
- Investing in underlying assets directly i.e., government gilts and high-quality corporate bonds.
- We continue to look out for structured products to place in our portfolios because by doing so introduces a certainty ingredient. However, they are not offering the risk-free returns they were.
- Our portfolios use fixed interest and fixed interest investments suffer when interest rates are high and there is more supply – this affects their value negatively. It should be remembered however, with fixed interest, you get your money back at maturity (which is not the case with other investments), so it’s a matter of holding these investments until interest rates start to come down or the investment matures.
Please note that:
- This information in isolation is not financial advice.
- Past Performance of investments is not to be relied on and the value and the income from investments can go up as well as down.
- It is advisable to regularly review your investments.
