I wrote here last week that the economists of the West need to start being a little less self-centred. Their prevailing view still seems to be that this is the “worst financial crisis ever”, when in fact it is nothing of the sort. It isn’t very nice, but it’s just a repetition of the usual cycle of financial history.
A reminder of this came from a reader who sent me a link to an article from The New York Times about a medieval credit crunch. The bankers of our own King Edward I relied on early forms of wholesale financial markets to keep the king in cash.
That worked fine most of the time. But when an expensive war came along at the same time as a new Papal duty appeared to finance the crusades, liquidity vanished – leaving poor Edward “at the mercy of loan-shark-like creditors at precisely the time he most needed cash”.
Those who still aren’t convinced on all this – who think that we’re living in a period of unique upheaval – should read what my old friend Peter Frankopan writes about numismatic history and the manner in which the Byzantine emperor Alexios Komnenos saved his own single currency from a crisis brought on by an overly indebted state and a nasty bout of the equivalent of quantitative easing.
For our own single currency crisis, you’ll see that bail-outs now enjoy a much shorter half-life than in the past: the bond-market euphoria in the wake of the news of the Spanish bail-out was all but gone in a matter of hours.
On the plus side, as Jonathan Allum of Mizuho International notes, the equity markets that have recently shown a tendency to “crumple” whenever interest rates rise in peripheral Europe have finally “shown a little backbone and held up respectably”.
I said a few weeks ago that the markets of the eurozone appeared to be discounting every possible kind of problem but very little in the way of a possible solution. Perhaps that is now putting a floor under the better stocks at least.
Also, you’ll see that I’ve finally given in to reader demand and created an investment trust portfolio. I’ve long had a bias towards investment trusts on the grounds of performance, transparency and cost (I’m also now a non-executive director of two trusts).
So it makes sense, I think, for a MoneyWeek core portfolio to be constructed from them. Our plan is not to change this portfolio much or often. But I can’t see it remaining completely static either. Trusts move in and out of discounts and premiums and that often gives compelling reason to buy or sell.
At the same time the six we have chosen for you aren’t necessarily the six best on the market. They are the six out of our panel’s ideas that I think together make the best portfolio for us to have now. With this in mind I will review the list, with the panel, every six months. I’m also buying all six myself – they will make up the core of my portfolio from now on.