Welcome to our #139 weekly newsletter.
“For women taking control of their financial future”
-Jana Hlistova
From The Purse
In this week’s newsletter, we spotlight why the UK has a growth problem and what this means for the investor.
Vicky Pryce joins us again on The Purse Podcast to talk about gilts (UK bond market), how volatile are they, are they still a good investment and UK growth.
Listen to the full interview here.
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And you can review the news in brief so you stay on top of global financial, economic and investing trends.
I hope you enjoy this week’s newsletter.
Until next week,
Jana
The problem with UK growth: what does this mean for investors?
Rising inflation, high interest rates and slowing UK growth means this will be a difficult environment.
The UK has a growth problem. So what does this mean for investors?
As reported by The Guardian, UK GDP fell by 0.2% in 2022 Q3. And it has fallen behind other major advanced economies in the last quarter.
Here’s how G7 nations fared in the July-September quarter:
Canada: +0.4% (according to advance data)
France: +0.2%
Germany: 0.2%
Italy: +0.5%
United States: +0.6%
United Kingdom: -0.2%
The UK chancellor, Jeremy Hunt, has blamed the invasion of Ukraine, and Russia’s "weaponisation" of gas suppliers, for hitting growth and pushing up inflation (UK: 10.1%).
However, what central bank policy makers and the government often fail to acknowledge is the real reason for the high inflation:
money printing during the pandemic
and ultra-low interest rates (ie cheap money) during the pandemic.
The UK was originally supposed to borrow just £55bn in the first year of the pandemic in 2020/2021, and it actually borrowed £300bn. And it continues to borrow money according to UK economist, Vicky Pryce on The Purse Podcast.
What are the implications?
Elliott Management Corp, a leading US hedge-fund firm, have called central policy makers ‘dishonest’ by blaming high inflation on supply-chain disruption as opposed to loose monetary policy, as reported by Morningstar.
In a letter sent to investors by a leading hedge-fund firm, they believe that the global economy is in an ‘extremely challenging’ situation that could lead to hyperinflation and ‘global societal collapse and civil or international strife’.
The firm also told investors not to assume ‘they have seen everything’ because they have been through the peaks and troughs of the 1987 crash, the dot-com boom and bust, the 2008 global financial crisis, and previous bear and bull markets.
According to Elliott, the markets have not fallen enough yet and that an equity-markets decline of more than 50% would be ‘normal’, but they could not predict when that would happen.
Recession, consumer and business sentiment, Brexit impact
According to economist Vicky Pryce, we are entering a recessionary period in a high-interest rate environment, with high-levels of public and private debt.
Consumer and business sentiment is really important here.
If consumers continue to spend less, companies may struggle to generate sufficient revenue to cover their costs. And in the case of high debt-ridden companies, they are likely to go out of business because they can not service their debt.
The UK has struggled with low productivity levels and investment over the last 10 years, and this is unlikely to change anytime soon.
UK growth has also been impacted by leaving the EU; trade has been more expensive and difficult and with far less staff available (than previously).
Therefore it is unlikely that the UK can can easily go back to ‘fast growth’ mode unless we see targeted growth policies from the new UK government (or perhaps the UK rejoins the EU).
For retail investors, the UK market may increasingly become less attractive. And they will turn to other markets such as the US to generate higher returns (in addition to seeking higher returns in alternative assets which can be more ‘risky’, including art, gold, silver or even crypto (BTC or ETH)).
However for many, with less disposable income available, they will save less and therefore invest less too (which may negatively impact their net worth).
What next? (Re) listen to this:
News in Brief
Financial news
Nasdaq 100 climbs 8.8% in best weekly gain since Nov 2020. Gained 9.4% in best 2 day gain since 2008.
US inflation cools in October. Overall inflation as measured by CPI rose 7.7% YoY, way below the 7.9% estimate. Core CPI, which excludes volatile food and energy prices, increased 6.3% YoY, below the 6.5% YoY change economists expected to see.
Euro recession is here, warns European Commission. The eurozone is also poised to fall into recession as double-digit inflation and the ongoing disruption caused by the Ukraine war hits growth.
UK lags behind other G7 countries. The UK fell behind other major advanced economies in the last quarter.
UK heads for long recession as economy shrinks by 0.2%. Britain’s economy shrank by 0.2% in the three months to September, in what is expected to be the beginning of a long recession.
ARK Innovation ETF sell-off deepens as crypto-related stocks like Robinhood, Coinbase, Block & Roblox crash, ARK now down almost 80% from high.
Bank of America expects that the derating of Big Tech has just started and is far from over. Sees similarities to Japan '90s, internet '00s, US/EU banks '07, BRICs & resources '11.
Sovereign wealth fund of Singapore Temasek, Ontario Teachers’ Pension Fund, & dozens of VC firms invested $2bn in FTX, propelling its valuation to $32bn in Jan. FTX’s chapter 11 bankruptcy filing on Fri will likely wipe out the value of the equity stakes.
Crypto: bitcoin, ethereum, DeFi & NFTs
Cryptocurrency exchange FTX files for bankruptcy protection in US. The world’s second largest cryptocurrency exchange, FTX, has filed for bankruptcy protection in the US and the founder, Sam Bankman-Fried, has resigned as chief executive. This is deemed to be the biggest destruction of wealth has happened today in the history of crypto as FTX files for bankruptcy.
Bahamas securities regulator says it didn't order FTX to reopen local withdrawals. SCB froze FTX's assets in the Bahamas late Thursday, but the exchange had already halted withdrawals a few days before.
And FTX was apparently hacked for $600 million late Friday, though FTX later reported it was able to divert some of its funds back to cold storage wallets.
Bitcoin returns to red, tumbling 7% on FTX collapse to $16,675. And Ether recently changing hands just above circa $1,260 off more than 4.5%.
Ether (ETH)'s net supply increase has turned negative for the first time since the Merge.
The Solana blockchain’s SOL token, one of the hardest-hit digital assets this week, was down 50%. SOL’s decline stemmed from speculation about Solana’s close connection to Alameda Research, a trading firm that was founded by FTX CEO Sam Bankman-Fried. SOL was Alameda's second-largest holding, according to Riyad Carey, a research analyst at crypto data firm Kaiko.
The Purse Podcast
We cover the following in our conversation:
The UK bond market: what are gilts?
Why are gilts so volatile at the moment?
Why did the Bank of England (BoE) have to intervene after the 'mini budget' in September?
What are LDI strategies and should pensions be using them?
The problem with UK growth
Listen on all podcast platforms including Apple Podcasts and Spotify+
Coffee Break? Listen & Read This
Grit Is Good. But Quitting Can Be, Too (podcast)
How women (and everyone) can form deeper bonds to fight bias at work (podcast)
Skinniness is back in fashion, but did it ever really go away?
We’d love to hear from you. Get in touch with Jana via the The Purse website or tweet @jointhepurse and @janicka.
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The Purse provides content for informational purposes only, we do not recommend products or services or provide investment advice. Please do your own research or speak to a financial adviser.
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