A generational buying opportunity? Just be careful of stagflation …
My thesis on stagflation …
Inflation is under control … so we can’t have stagflation right? Well, I think maybe inflation WAS under control, not so sure now. Prices of every day staples are already HIGH. So at best things going up slowly from this point is definitely better, but it isn’t exactly fixed. And as we’ve recently seen with the war in Iran, things are precarious and inflation has now started nudging up. As we hear a lot, maybe 3% is the new 2%? Add in an oil price shock and perhaps inflation isn’t as under control as we might like.
I’m not sure many of us noticed, but interest rates were quite competitive. For a while. They were even heading in the right direction (if only by a small amount). Now that’s all changed. SONIA is not happy. Today, the 5 yr rate is 0.7% higher than a month ago. That’s a far more significant change than the piddling little interest rate reductions we had due to the base rate. Welcome, of course. But small beer.
We’ve had some wage growth but mostly that has caused businesses to tighten their belts.
Taxes are UP.
Business taxes (NI, biz rates etc) are UP. Sentiment from businesses on expansion, growth or taking on new employees is NOT good. Quite the opposite in fact. Especially with the business rates changes taking effect now.
The SME business sector is not in a good place.
The FTSE is dead or dying. There are basically zero new IPOs.
So the large cap businesses are not doing well or growing. And the consumer economy, which typically makes up about 70% of all economic activity is especially dire in the UK (see affordability issues above).
There is no agenda for growth. I can think of 100 things that the government could do. Some inside and some outside my area of expertise. I’m sure we could each come up with a list. No-one in government is doing anything about this. The clear tell was when Starmer put a call out to the regulators about how to stimulate growth. WTAF!?!?! WHY would you go to a regulator with that question and not to industry!!! The one exception is spending tax payer money on massive infrastructure projects that will take 5 years to get planning and 10 years to build (water reservoirs, trains, Hinkley etc etc). All fine and dandy, but nothing that will ACTUALLY stimulate growth much and certainly not for a decade.
We are not leaning in to our strengths (rule of law, the city, finance, global reach beyond our size, GBP etc etc). Again, 100 ideas. None the gov is interested in.
So is it a generational buying opportunity? For sure, by some measures, property is cheaper now than it’s ever been. And investing is definitely unpopular. But just be careful. For that to work, you need to be confident we’re not heading into a decade of stagflation, or more. If property values don’t go up, then property investing doesn’t really work. The returns from rentals just aren’t really good enough.
So unless you’re buying at a crazy discount. And I mean CRAZY. And even if you’re getting a 10% or better yield. Be careful.
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