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The Humbug Report – Part II – Rest of the World 2013

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By - Wednesday 19 December 2012

The Humbug Report – Part II – Rest of the World 2013

The Eurozone

As predicted last year – it's still alive, it's still bogged down by indecision and the UK is still doing the hokey-cokey on the side-lines. Greece is still in, Spain has joined the bail-out list and the whole subject has become rather tedious to say the least.

With respect to next year – I really doubt much will change as far as any kind of resolution is concerned. None of the member states appear to be able to come up with any feasible ideas to fix what has become a very convoluted concept. All we can really expect is more discussion, even more disagreement and even less change. Oh, and a few more bailouts – Italy likely requiring their first, Spain, Portugal and Greece probably returning cap-in-hand for some more too.

USA

Last year I suggested the US property markets might improve slowly but caution should be observed if investing – turns out the financial world would have us believe recovery is underway, and to some extent and in some areas I would agree, although not to the giddy heights of years gone by. America needs to work on employment levels and re-establishing itself as a financial superpower. There are and will continue to be bargains to be found in the form of property investment in the US – you will need to look hard for them though – the days of buying-up any old house and expecting it to be a goldmine are long over.

Recovery in the US will be somewhat dependant on foreign investment. There are signs of this happening now with extensive activity from the Chinese buying up property both for residential purposes and to diversify their holdings with their new-found wealth.

Much noise has been made about Warren Buffett buying into the real estate sector – what many have missed though is he isn't actually buying any houses – just stock in real estate related companies. Also missed is his suggestion in 2010 that the US housing market would "recover in a year or two". Whilst his buying of stocks does shine a slightly brighter light on the industry as a whole, it does little to improve the price of any property or the affordability of it. It pays to remember that Buffett is a rule unto himself when it comes to investing in anything simply because he has more cash and market moving power than any of us mere mortals can even think about counting.

China

Last year I suggested we would see a low-level correction of Chinese house prices, despite continued doom-mongery by Western journalists. Both appear to have been correct, like it or not, the Chinese Government's restrictions appear to have paid off, with price rises levelling off and no almighty bubble-bursting taking place so far.

Next year? I suspect we may well see some renewed growth for a few reasons. Reports suggest a lot of money is leaving China with heavy investment activity in the West, both in Europe and the USA as a result, I think we may well see legislation begin to change in China to allow foreign money into the country with respect to property purchasing. If we do, it will likely be under very heavy regulation and I doubt very much there will be any lending facilities made available to foreigners – more a case of "cash only". To be honest – who can blame them given the way the West has failed spectacularly at controlling its own lending?

Even if the Chinese don't open up more next year – we can still expect to see controlled and sustained growth in the market – the Government have pretty much proved they know what they are doing and are determined to keep control – regardless of what us Jonnie Foreigners think or want.

Stock Markets and Gold

Last year gold sat at $1597 – at the time of writing today it is at exactly $100 dollars higher at $1697. The year range hasn't been much more exciting with a low of $1540 and a high of $1790. Last year's prediction was that gold could be in for a turbulent time and possibly end the year lower.

The FTSE 100 currently sits at 5930 – up roughly 10% - making up perhaps for the losses made the previous year.

The lack of volatility in both the FTSE and the gold markets is telling in itself – when tough times have reared their ugly head in years gone by, traditionally one might expect to see a rush to gold and desertion of the stock market – this obviously hasn't happened in 2012, so what has gone on?

If I am honest – I don't know. Taking a guess (and probably annoying those that do know) I suggest that much financial jiggery-pokery is afoot, with the finger being pointed indirectly at quantitative easing. Yes I know QE is not actual cash, and yes I know it doesn't get spent directly in the markets – but it does go some way to stabilising the economy – which is what appears to have happened.

If you think you can explain (with supporting evidence please) do get in touch for a chat.

Next year will be interesting – the Bank of England is getting a new boss, more QE is unlikely and interest rates may well rise creating the need for probably what will be one of the largest financial juggling acts of all time – keeping activity in the stock markets healthy without everyone running to gold, and avoiding total bankruptcy through inflation.

The Investment World in General

I have noticed a disturbing trend beginning to manifest itself – so far it only appears to be in the property industry, but I suspect it will spread very quickly into other areas before long. This trend is the belief that optimism will cure all. In this years' UK Housing Humbug Report I caught RICS at it, and just the day after, property industry big-shots RightMove cited optimism being a driver for the UK property market.

I don't doubt for an instant that there will be many claims that optimism is a good thing and I should stop being so pessimistic, but just stop and consider these two points for a moment:

  • It doesn't matter what you think, what happens will be different. Whether it is better or worse than the projection you have – what you or your surveys portray will have no impact on the outcome
  • Optimism is not a fact

My advice – think about ALL the possible outcomes of your investment actions – not just what sounds great based on other people's thoughts – if your thoughts cannot be 100% correct – how can a decision based on other people's be any better?

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