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A financial storm brewing?


I keep getting emails telling me that there is a financial storm brewing. I don’t watch the video, they tend to ramble on and you’re none the wiser afterwards. They are after my money, I can be sure of that. So will the recession in the UK get worse? Or better?

The Bank of England seems to think it creates wealth with it’s quantitative easing programme, but money is just for exchanging wealth, not creating it. Wealth is created when people innovate, make new products and  maintain what we have and build upon it. Some people think only manufacturing creates wealth, but even pop singers who record and sell new CD’s create wealth. If it is created and sold, whether it is a product or a service, it’s still wealth. The Bank of England doesn’t really create anything, but the means to exchange that wealth; money.

Are there signs of innovation and wealth creation? I don’t see many, the wealth creation that is happening is because of a quest for survival. We really need more investment in innovation. It seems that companies are struggling to get investment and banks are reluctant to lend them money too. The system is broken.

So what are these financial storms we are supposed to worry about? I think as interest rates rise and the economy begins to return to normal, we will see some anomalies in the economy as yields on bonds drop. The ‘coupon’ on bonds will be higher, but prices in the market will be lower. This will affect pension funds that have bonds already. They are now seen as a ‘safe harbour’ for  money and wealthy funds and companies are awash with money, as are rich individuals. Another so called ‘safe harbour’ are some blue chip companies and we could see the share prices of those drop as interest rates rise. Whether it will be a financial storm depends on how quickly interest rates rise. We could see then rise quite quickly if the pound is no longer seen as a ‘safe harbour’ currency.

Companies that produce wealth and innovate will be the good investments of the future. The ones that simply manipulate and speculate might be bad investments.

I wrote about spending money on a zillion ideas today; you might like to read that because we all need to be careful with money, at least for a while. 

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2 responses

  1. Hi Mike, You are so right, a simple rule of financial investing is to invest in companies whose products you would buy. If you don’t understand what a company does, or don’t see the value in what they offer, then it’s probably not the investment for you!

    24, August 2012 at 3:09 pm

  2. Hi Carolyn,

    That is so true. My best investment was in a company whose products I buy and the worst one was some time ago and I invested because the company was the target of a takeover. The takeover was blocked and so I lost on that one.
    I might invest in a company that operates overseas because I think the pound will lose value in the future. I would prefer to invest in a company I buy technology from, but they are all overseas and not easy to invest in!

    24, August 2012 at 3:53 pm

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