Business comment: Financial services should be there to serve
By Dan Roberts, Business Editor, Sunday Telegraph
Last Updated: 2:14am BST 19/08/2007
First, the bad news. Don’t be fooled by Friday’s bounce. We are not out of the woods yet. If anything, the Fed’s decision to rescue markets by throwing money at the problem supports our view that this summer’s financial crisis threatens the wider economy.
A slowdown will be painful for everyone, especially here. Despite our Chancellor’s belated words of confidence, the UK is excessively dependent on the City. Even companies far away from the Square Mile will find it harder to borrow their way out of trouble or invest in new factories, shops and offices. It may not tip us into a recession, but the fall in confidence will trigger a big chill that brings some racier parts of the economy to a near standstill.
Best assessment of Friday’s Fed action is that we are heading into a period of inflation (i.e., the Fed’s “helicopter” Ben dumping more counterfeit notes into circulation) and recession (i.e., consumer and business confidence will “de-invest”).
How does one save and invest going into this climate?
Clearly one has to “surf” the wave of inflation. Don’t even think about sticking money in your mattress. To surf in a falling market is a good trick. Riding indexes south will not only NOT keep up with inflation but may actually be a big loser if you guess wrong. The best strategy might be targeted investments in things that retain value. Defensive stocks, high quality stuff, commodities, essential businesses.
Tie in a recession, and you need to focus on where people have to spend money regardless of their “confidence”: basic food, medicine, healthcare, drugs, commodities.
Look to the era in the USA during Carter’s stagflation and Japan’s Decade of Zero Interest Zero Growth.
Where is growth “guaranteed” — India (where you might get an honest count) and China (where you definitely are at risk of a haircut).
Certificates of Depreciation — on the theory that a small loss is better than a big loss?
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