It is about this time of the cycle that the press becomes over-loaded
with articles on where to invest or what represents good value..is it
gold? Or perhaps over-sold FTSE 100 stocks? Funds which invest in
Emerging markets? Or..if you have the cash and stomach just buying a
devalued currency?
Well I am one of those that always believes the starting point
has to be your appetite for risk..there is no point following the herd
and loading up on a new fund which is based around a fund of hedge
funds if you are going to lie awake at night worrying that your wife’s
shopping budget is going to get destroyed if the leading trader at the
hedge fund decides to set up on his or her own and leave the firm and
their mega package of salary and share options.
Brass tacks then, what are my thoughts short term? (All the
following assumes nominal returns..if it were real returns we would be
looking at say 3% off any returns) Well for an average investor who
pumps away a four figure sum every month…lets forget property for the
moment straight off.. the capital growth side is still falling down
like a six year old pair of Y-fronts..it has found no support on the
thighs yet!
You could put a lump sum towards property and gear up to £500,000 with
say a 75% LTV (This assumes you get a decent mortgage rate which have
moved up 1% since the third quarter of 2007). So you have equity of
£125,000 falling 5% in year 1 and another 5% in year two (conservative)
before any positive growth comes through. After two years your equity
is down to just over £112,000. That of course excludes the additional
impact of stamp duty and legal fees at the start.
With the contagion in the banking world at the moment I do not see
borrowing costs coming down in the foreseeable future, even with the
pumping in of £50bn in a debt for bond transfer scheme. Rental income
side of the total return? Well the markets are flooded with one and two
bed flats, so I do not see rental yields rising quickly, although I
accept there are still those persons who have been priced out of owner
occupation and will need to rent, but they have choice on their
side..and buy-to-let landlords who have remortgage nightmares pending
and need rent to cover costs. It is, in all currently as appealing as
running across my kitchen floor in the dark with a mass of bear traps
on the floor.
Equity markets? Well here I am more positive, the markets have
been strafed for a long period now and some of the companies are
starting to whiff of possibilities, there are FTSE 100 companies out
there with p/e ratios of sub 2 and good fundamentals. Now I am not
saying that buy this and your pot of cash will jump like a cork to the
surface, but you have a dividend coming through and…the upside of a
realisation of under-value. That said, take care you should look at the
cost of corporate debt to gauge the markets sentiment..if the debt is
selling at 50p in the £1, then the market reckons there is a 50% chance
of the bird falling off its perch.
Savings? At the moment there are some gems out there with
lending institutions falling all over themselves to get you to invest
and restore their Tier 1 capital levels, it looks very appealing. What
am I doing?
Well for starters one of those banks is currently underwritten by you
and I..and offers a return of over 6%. For a year or two’s safe
harbour….come on, that’s as simple as milk in your tea.
This is only my view and is not representative of the whole
market, however as the market unfolds I will keep you up to speed on my
strategy, I started out in property and at some point it will start to
shine again…but not yet, the markets to recover first will be the
indirect ones I feel, say the Listed REITS and non REITS, look for
those players who have seen this before and no how to act and survive.
The new youngsters? Well, they have never seen a bear market and are
full of wind and bullshit bingo quotes, anyone can stand in a bar after
four pints and talk themselves up…what they cant do is pee straight
without getting it on their fingers.
Regards.
Sept 2007.
|