Investment decisions; geopolitics

In a letter to a friend I briefly outlined my current investment situation and strategy. It's important, I think, to maintain a steady and realistic perspective on the general situation in financial markets both for practical, investment-related reasons and also for understanding current affairs. Politics, economics and finance are inextricably intertwined.

It helps me to state my general position explicitly from time to time. Obvious facts can be vitally important yet they are often overlooked...

I am in a position where I am forced to bet on how the future pans out in terms of economies, interest rates and currencies. I find myself (for reasons I won’t go into) almost entirely in AUD cash. This is my starting point, for better or for worse. AUD is weak against the US dollar. So I am waiting for something to happen (stock market crash or bond yields spiking or AUD rising against USD or other assets becoming cheaper in AUD terms) so that I can make a move with some confidence that I am not being suckered by a fake market.

Nobody knows when things will blow up. But blow up they must given the absurdly high debt levels and low or negative interest rates which are causing massive malinvestment, destroying savings and pensions and destroying the faith that people once had that price signals and so on could be trusted to reflect actual economic realities.

Many companies are on credit-fueled life support: no prospect of ever turning a profit. That’s in large part why the powers that be have to keep interest rates low. If they rise the non-viable companies go bust. Many corporate bonds become worthless, etc.. And zombie companies are not a small percentage of the total these days. Banks are especially vulnerable.

The same logic applies to individuals and families with big mortgages or other debts. Rising rates will cripple them financially as residential real estate prices fall.

And, of course, governments are heavily indebted too. If rates go up, more of the budget must go to service that debt.

US authorities apparently want to weaken the dollar to stimulate exports etc.. The danger is that at some point the dollar will just suddenly start to lose purchasing power as other means of international payment come on stream.

Confidence in the system is rapidly eroding. There is a growing general realization that the current monetary and financial system is failing but it is impossible to know what exactly is going to replace it. Or when.

US policy on the Middle East (and the Far East) is driven mainly by economic and financial factors – and always has been. (Oil. The dollar.) As the petrodollar system breaks down, there are clearly increased risks of conflict between major powers.

Filthy lucre

My thoughts have been more than usually concerned with financial matters of late as I attempt to rejig my modest investments in the light of the changing economic and financial environment, and bring them into line with my assessment of the current risks and opportunities out there. It's difficult to know where to put one's savings these days, with currency turmoil and sovereign debt problems adding to the usual uncertainties. I may in the future have a go at talking in detail about these matters though I still have a residual sense (derived from a rather old-fashioned upbringing) that money is not a proper subject for polite discourse!

The most unlikely people have spoken in praise of money - and in the most unlikely circumstances. The English television and screen writer Dennis Potter was interviewed on Channel 4 by Melvyn Bragg a short time before his death from cancer. He was in pain, and occasionally sipped a morphine-based concoction from a flask. He spoke of his early life, his work (he was trying to complete a final television drama), politics, English culture, and of his desire to murder Rupert Murdoch. Despite his left-wing views, Potter admitted to a strong preference for traveling first class. A disarming aside stuck in my memory. "Money - I like it," he said.

If lefties and the dying normally refrain from speaking in praise of cash, so do other categories of people, including Romantics and romantics. And, of course, the traditionally religious. The notion of holy poverty ("Blessed are the poor ...") is a major New Testament theme and a strong element in most Christian traditions, including Roman Catholicism.

So this couplet by Hilaire Belloc, a writer who strongly identified with the Roman Catholic church, has rather more punch than it would had it come from the pen of a worldly cynic:

I'm tired of Love; I'm still more tired of Rhyme.
But money gives me pleasure all the time.