| Nick Hubble | 25 May 2020 |
How to not invest your money…
An interesting ratio
If we take the S&P 500 and divide it by the money supply, we find some interesting data. For example, the peak in 2007 is similar to the one in 2020. But a better comparison for today is 1987. How are these years similar? And more importantly, why is this a bullish sign?
| | Dear Subscriber,
I'm licensed to give certain financial advice in the UK and Australia. But this doesn't seem to help me much when it comes to investing my own money…
I don't mean that my investments perform badly. In fact, the only two investments I have are doing rather well lately.
I mean that I can't even get to the point of investing in anything else. I'm thwarted each time I try to buy anything.
Don't feel sorry for me. Learn the implicit lesson here. I've explained it before. But today you'll see just how well it applies to me. Here's my story…
Late last year we recorded a video series called, "Investing lessons learned the hard way". Actually, it wasn't called that initially.
In the videos we asked each of our editors at Southbank Investment Research what the most valuable investing lesson of their career was. They all recalled learning something the hard way. Hence the name.
You can watch the videos here. Mine is about counterparty risk – what I want to update you on today.
You see, I can't seem to get a decent counterparty on anything. I'm learning my own investing lesson the hard way, right now. And have been for years.
You may be interested in| Unseen changes are coming to the way you protect and build your wealth.
The fallout from the current crisis will leave many behind.
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Luckily, the lack of a competent counterparty has prevented me from investing each time, instead of leading to any losses. But it's still been a pain in the neck.
Back in the days when I used to try and buy a home, I had found a bank to provide an owner-occupier interest only loan. The idea was that mortgage rates were so low it was cheaper to buy than to rent. A lot cheaper. And, as Brexit unfolded, UK house prices and the pound would rise.
Unfortunately, the flammable cladding debacle had other ideas. A sea of scaffolding covers Greenwich these days. And, until the cladding replacement bill is settled by… nobody knows who yet… the bank won't lend to us, or anyone else, to buy the place we agreed to. My counterparty left me loan-less.
Not that this stopped the real estate agent from claiming at the time that it would all be sorted by… a year ago… at the latest. We moved in as tenants back then on the basis that we'd buy in a matter of weeks.
The cladding costs still haven't been finalised – not that anyone is telling us what's going on.
They did find an additional cladding problem during the repairs though… Shortly after the scaffolding came down, it went right back up again.
A few weeks after the waking watch which monitored for fires had supposedly been removed, I discovered they were actually still in the building, sitting in the stairwell…
All this won't cost me much, compared to what it's costing our landlord and vendor. Although my rent is about a thousand pounds more a month than the mortgage would've been…
The thing is, this isn't an isolated shemozzle. My own observations as a renter of other people's properties suggests such debacles aren't unusual.
Just as the scaffolding surrounding our building finally came down the second time, the brand-new high-rise building opposite began its re-encasement. Bricks have come loose on the corners of the building. I think they're going to have to rebuild the entire outer casing.
I wonder who pays?
At the end of 2018, upon moving to the UK, we were looking for rental flats. We were assured that one block also caught up in the cladding debacle would have its cladding replaced by the end of 2018, so we could sign the lease now. We chose somewhere else at the time. The scaffolding is still there today…
A few weeks ago, the security door between our communal hallway and lift/stairwell wouldn't open. The fob key didn't work. We were locked in the building. If there had been a fire…
In the first flat we moved into, upon arriving in London, there actually was a fire. A big one. But the fire alarms didn't go off.
We were awoken at 2 am by firefighters in their full breathing tank gear banging on our door. And descended five flights of stairs in thick smoke, much to the surprise of all the other fire fighters watching us go past…
Given all these dramas, we eventually went to see actual houses instead of flats. But those were just as bad. A recently renovated house had put up blinds in a way that you couldn't open a kitchen cupboard door… The real estate agent thought it was hilarious.
With such nincompoopery evident to even me, who knows what disasters are hiding in homes we might buy? I think you'd be mad to risk being the one held liable for such flaws. If I think back how much my landlords have had to shell out on repairs, it frightens me.
As a volunteer for emergency services in Australia, I was once given access to confidential flood maps. Let's just say that I won't trust any developers' claims about flooding in the area they're building…
A few weeks ago, my friend sent me a news story. The floods which the maps had warned about sunk many millions of dollars in new properties.
All this has put me off buying a house, for now at least.
Instead I turned to the world of shares ISAs. By opening them up before the April deadline, I'd be able to plough our house deposit into the stockmarket, tax free, at the bottom of the Covid-19 crash.
The account still isn't active… I couldn't buy the stocks I wanted.
The ISA provider failed just as badly as our house hunt and rental providers did. I'll spare you that saga. Although the Financial Ombudsman just emailed last week to apologise for the delay.
At this point, I'm getting rather sick of trying to do much of anything with our savings. If I can't even find a way to invest it, imagine the trials and tribulations of trying to sell out again!
Not that I'm surprised. It took me months to set up a bank account in the UK in 2015. I literally staged a sleep-in protest at a branch in Canary Wharf until they agreed to open one for me.
Compare all this drama to my mentor Dan Denning and his recent investment in gold.
According to his podcast with my colleague Boaz Shoshan, Dan had a bunch of Aussie dollars he didn't need as he planned to leave for the US. He decided to buy gold instead of paying the currency exchange fees.
It was as easy as walking a few blocks, handing over cash and waiting a minute for the gold to be put in his hand.
Done. Zero paperwork. And 100% confidential, by the way.
Don't forget that gold has outperformed Warren Buffett's Berkshire Hathaway, let alone the stockmarket, over the last 20 years…
With my stories out of the way, let me ask you, which of all these assets appears to be most crisis proof based on counterparty risk? Which is most reliable, convenient, simple and effective? Which one doesn't rely on other people doing their job properly?
Gold trounces the lot of 'em. And that's why it's outperforming during this crisis.
It is incomplex – a word I just made up to signify being anti-complex, or the inverse of complexity. Gold goes up when complexity is wreaking havoc in its many ways in the financial system. When people want what works and is reliable because it doesn't rely on anything or anyone else.
But, assuming your stock brokerage provider is not as incompetent as mine, there may be an even better way to profit from gold's boom.
A way to leverage the gains as the gold price booms. Find out the details here.
And check your counterparties.
Nick Hubble
Editor, Southbank Investment Research
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