Diversify Your Wealth
Gold: Why Diversify Your Wealth?
I was sitting on my train this morning and I heard three separate banal idle commuter conversations all about the same topic. It actually made me laugh. Which topic of conversation do Brits love to talk about the most? The Weather. I’ve actually just come back from Lisbon where the weather ranged between 20 and 25 degrees, so I suppose I was catching up on the weather news I so longingly missed. By the sounds of things it has been sunny, clear, rainy and snowy. Typical good old British weather. Leave the house in the morning in a rain jacket, only to find the weather turns surprisingly warm by the afternoon and before you know it in the evening, you’ve got sleet. As a Brit you have to prepare for all eventualities and diversify accordingly.
This leads me to my next point. Whilst in Lisbon, I was chatting to a chap who works for himself in apparently one of the recovering industries in Portugal’s economy – Tourism. In 2015, Portugal’s GDP was €179,410 billion with tourism providing 6.4% of GDP, approximately €11,482 billion. He told me that everything was in the pan apart from Tourism. I’m not sure that is strictly true after doing a bit of research on Portugal’s GDP share per sector – but I guess it is a visibly noticeable improvement – more people and more coaches in the capital Lisbon. This will of course result in more bars and restaurants opening and cabs/tuk tuks and the like will see more footfall and punters. The hope for Portugal is that tourism really takes off over the next few years and increases to help bolster it’s share of the overall GDP. A risky strategy with no guaranteed returns.
After having a chat with this chap and reading more about economics in a copy of National Geographic, it made me think. Over-reliance in one type of industry/sector/monetary policy in the case of the Federal Reserve (FED), is risky. It only takes a slight adjustment made outside of your realm of control and you will be facing a problem. Currently I feel that there is an overexposure present in the global economy of all/nearly all eggs in one basket. The strength of the dollar combined with over-indulgently awaiting news and analysis preceding Federal Open Market Committee (FOMC) announcements, is creating too many ripples. It is the same in Europe and the European Central Bank (ECB) so it isn’t just North America, but the reality is the US is the strongest economy. In my opinion it is the lack of diversity in Monetary Policy (and the systemic problems in the banking industry) that filters down through the rest of the economy, which ultimately means that equities and currency will be manipulated and targeted, just as FOMC do for the dollar.
The Bank of Japan (BoJ) announced yesterday something quite “unexpected” – to vote to keep monetary policy in negative territory and not to relax the current policy. Why anyone thought this was unexpected I’m not sure: 1) BoJ took the initiative originally to aggressively set a negative interest rate 2) Japan have been losing ground in the currency war between the US, the result of this decision means they will capture more ground on the dollar 3) Weak data about the US has already flown round the news so it is no surprise Japan want to capitalise on that through arbitrage 4) They like the US will want to keep parity with China who are buying the alternative asset: gold. What the BoJ have done is in essence prove a point. Do not expect the expected. Economics is interesting because of patterns and algorithms, but it is also interesting because of mercurial swift change and corrections.
I guess the moral of this story is this: diversify and prepare. The idea of buying gold now is more important than ever. If you don’t prepare and take that initiative to diversify and pack your rain jacket in the morning, you may well get drowned by the monsoon in the evening. Thankfully Portugal has sunny weather… mostly.
Article by Michael Cooper