I blame Mario Draghi. Last July, the head of the European Central Bank said he would do “whatever it takes” to save the euro. Six months or so later, stocks have bounced across the globe, and he’s being applauded as ‘man of the year’ by talking heads around the world. Now all the other policymakers want a piece of the action.
Lord Adair Turner, chairman of the Financial Services Authority, says we shouldn’t dismiss the idea of “helicopter money” – that is, going a step beyond quantitative easing and just creating new money to spend directly.
Bank of England governor-to-be Mark Carney advocates a “flexible inflation targeting framework”, allowing central bankers to ignore inflation when it suits them. In Japan, finance minster Akira Amari said he wants to see the Nikkei 225 hit 13,000 by the end of March – that’s a more-than 15% jump from here. The message is clear: the printing presses will keep on running.
What should an investor do in this sort of environment? The consensus is: get out there and fill your boots. Bob Prince, co-chief investment officer of Bridgewater Associates, one of the most successful hedge funds in history, says “you want to [borrow] cash and hold almost anything against it”.
That’s a little indiscriminate for our liking – and borrowing money to invest tends to end in tears. But one thing is for sure: with central banks and politicians hell-bent on forcing savers into risky assets, leaving your money in cash will feel painful.
So what should you buy? As Jeremy Grantham of GMO notes, the same as you should always buy – what’s cheap. He’s having difficulty finding anything that qualifies, but Japan is just about there, he thinks.
As for individual tips, given that central bankers of the world are uniting to persuade you to take a punt, it’s appropriate that this week’s cover story looks at ways to profit from the US gambling industry. And one group of funds to benefit from the ‘dash for trash’ is the private-equity sector. David C Stevenson takes a good in-depth look at the most-promising looking funds to buy here.
So much for investing – what about the impact of all this on the ‘real’ world? It’s pretty plain. The Bank of England’s latest inflation report forecasts slower growth and rising prices. The Bank won’t tackle inflation because the economy is too weak to withstand higher rates. But the constant grind of rising prices is hard to take too.
After inflation, average wages are down at levels last seen in 2003, says Capital Economics. With living standards being crushed, it’s hard to see how Britain’s economy can bounce back. Weak growth, inflation, and near-zero interest rates are a disastrous recipe for a currency. Which is why you should also diversify out of the pound: international stocks and gold are good options.