Bitcoin – Greed Rarely Ends Well

I am literally flabbergasted at the way people are parting with their hard earned money ‘investing’ in an asset (or is it a commodity?) when they really have no idea what it is, how it works, what governs the price and how it is regulated (or not, as the case may be). Welcome to Bitcoin.

 

Much of this euphoria has been brought about by clever people using sharp marketing to draw people in. I myself had a text message last week promising that someone (quite who I don’t know) would pay me 4.2% per month without any risk at all by ‘investing’ in Bitcoins. What’s not to like!

 

What is behind the euphoria? I understand perfectly well why ‘alternative’ currencies could be good for society. But I also understand that these kinds of unregulated markets would be ideal ways for criminals to legitimise their ill-gotten gains. The problem is, a huge gain in the Bitcoin value this year has seen the subject front and centre of media – especially social media. And that entices people. A lot of people. The problem is, of course, that speculative bubbles generally burst and no one knows exactly when they’ll pop. But they do. Always.

 

As I sit here writing this, Bitcoin is up over 11% today and its price now sits 20 times higher than it was just a year ago. This kind of euphoric investing rarely ends well. My view is that the smart people are already out of this market and have moved on. The ordinary man in the street who bets his life savings on the price continuing to go up will be the one who really suffers.  

  

As legendary investor Warren Buffet says, investors should be “fearful when others are being greedy” and that really has some resonance in the context of Bitcoin.

 

Greed rarely ends well.

As Safe As Houses?

Aside from the Brexit circus, the big news in my ‘special little world’ has been Halifax’s announcement that the growth in UK house prices is continuing to slow. The UK’s largest lender announced that their calculations highlight that house price growth is only a fraction above inflation and likely to slow further.

 

Halifax’s figure of 3.9% differs from most current indicators (and that of Nationwide’s – the UK’s largest building society) that the figure is even more modest – probably nearer 2.5%. Regardless, the key message is that house price growth is slowing and will slow further.

 

Which all leaves two key questions:

 

1. Why Is It Happening?

It is a range of issues that have created the cocktail. Firstly, Brexit (obviously) isn’t helping. Uncertainty makes people more cautious to spend and stretch themselves and choosing to retain the status quo for a while is the safest option. Secondly (and equally as impacting), is that wage growth is less than inflation which means that we have less money in our pocket than last year. Earnings growth being above inflation is a key ingredient to a positive housing market.    

 

2. Is This Really A Big Deal?

In short, yes. In fact it’s massive. There is a direct correlation between house price growth and our economy, which the Government is all too aware of. When house prices are buoyant, the UK spends money and the economy gets a lift. It’s the collective psychological feeling that you are wealthy due to an increase in equity in property that then allows more fanciful spending.

 

Earnings growth has been and is likely to continue to be around 2% over the next 12 months. Which leaves us to ponder what inflation will be over the next 12 months.

 

Negotiations with Brexit will impact our exchange rate which will impact the cost of imports……which will impact the rate of inflation. That bloody Brexit gets everywhere!

 

Interesting times

May The EU Force Be With You

 

It’s fair to say that I am getting a bit bored with the whole Brexit ‘divorce bill’. I’ve read various reports, theories, spin, counter-spin that offer wide ranging figures on what the actual cost to leave the EU will be for the UK.  

 

In the red, white and blue corner we have the UK simply trying to pay as little as possible. In the blue with yellow stars corner, we have the EU wanting as much as possible. The political sparing that has resulted with the financial negotiations has simply created a 9 month delay with nothing remotely important agreed. You see, the EU want the financials sorting before they will consider anything else. Why wouldn’t they!

 

Nearly 40% of our 2 years notice has gone. We have nothing agreed. The longer we do not agree the financials, the longer our economy suffers due to the uncertainty. In the grand scale of things, the key thing is to agree to a figure as soon as possible……even if it means paying a premium price for a ‘quick agreement’.

 

The reality is this:

 

1. Regardless of the figure agreed to leave the EU, Prime Minister Theresa May will not be able to sell it to the UK, she will gain no political points and she will leave herself open to abuse. £30 billion? £40 billion? £50 billion? It makes no difference, she is going to have to take it on her political chin.

 

2. The UK has a very weak hand to play and it is likely that we will have to pay the full amount that the EU want regardless. Playing hardball just isn’t going to work.

 

3. As soon as the financials are agreed, the UK will take a big step forward in restoring some confidence globally and take a big step closer to overseas investment returning to the UK.

 

Let’s get it done Mrs May.