DIY Investor Magazine
| August 2017
4
CAR BEFORE THE STORM?
By the time you read this, Jackson Hole will be just an
answer in your pub quiz, and the world’s central bankers
will have flaunted their supreme collective intellect by
finally declaring the ‘Phillips Curve’ defunct.
‘Not the economic theory that identifed a strong
and inverse relationship between inflation and
unemployment?’ I hear you cry; the very same. Since
the 2008 crash, these powerful people have kept the
wheels turning by pumping money into financial markets
and driving interest rates lower for longer than ever
before.
But this process of quantitative easing can have side
effects that gnaw away at the very heart of capitalism;
property prices soar, stockmarkets are driven ever
higher fuelling inequality and social unrest, asset prices
can become unsustainably high and households gorge
on cheap credit. Unsecured debt in the UK has now
surpassed levels before the financial crisis, and the total
has been growing at 10% p.a. – five times the rate of
wages; car loans looks set to be the next hot spot with 9
out of 10 cars in the US and the UK bought with cheap
credit.
With $15 trillion of bonds to off-load, the central banks
would love to see interest rates nudging higher, but
these indebted families are incredibly vulnerable; whilst
car loans may pale next to sub-prime mortgages, it
could be the next bubble waiting to burst.
Before becoming too awestruck by these economic
masters of the universe, it is worth remembering that
very few saw the crash coming; it always appears that
the safest place on earth is the scene of a terrorist
atrocity one day on. The last issue of DIY Investor
Magazine asked ‘who can you trust?’ - would you have
backed yourself to come to the right conclusion in
refusing a 110% mortgage on a clapboard in downtown
Detroit to a dude that was confident of landing a job
next week? They didn’t, and now he’s got a shiny new
car in the drive of his rental – ‘if we don’t learn the
lessons of history’ and all that.
Which is why the FCA’s investigation into investment
platforms is to be welcomed; sub-prime became so
complex that few banks understood what they were
buying.
FCA aims to ensure that good information is
available, fees and charges are transparent and that
platforms deliver good value for the consumer; very
commendable. With self-reliance necessarily replacing
state provision, education and information are key
to empowering people to take control on the road to
financial freedom – ‘
FIRE
’ is an oft quoted objective in
the US –
F
inancial
I
ndependence
R
etire
E
arly.
In this issue we stick with the recurring and vital issue
of investing for income, and with good contributions
from
JP Morgan Asset Management
,
The Scottish
Investment Trust and Janus Henderson Investors
we explore how they use the unique structure of
investment trusts to deliver both income and capital
growth.
Elsewhere, with public awareness finally on the rise, we
look at the basics of increasingly popular
Exchange
Traded Products
and with the UK stockmarket paying
out a record £33.3 billion in dividends in Q2 we look at
equities as a source of income.
We hope that DIY Investor Magazine helps you to make
informed investment decisions and inspires you on the
road to financial independence; as ever we welcome
your feedback at
– DIY, Do it For
me, Do it With me – just don’t do nothing.
