Last week the Bank of England’s Monetary Policy Committee (MPC) decided to keep interest rates at 0.1%, which wasn’t a major surprise. Good news for borrows, not so good news for savers. The Bank also said that they expect the economy to recover to pre-covid levels before the end of 2021.
The Bank also released the Money and Credit statistics. I find this far more informative because the velocity of money and availability of credit are key metrics as we head to the post-pandemic economy.
Velocity is about the number of times that a single pound moves from the customer to businesses, to its employees and staff, to other businesses in the economy. Whereas credit is the availability and amount of borrowing, and interest rates on this, as well as deposits by households and businesses against which this borrowing is secured.
The figures from the BoE show households saved another £16.2billion into bank accounts in March. This as savings interest rates remained at these historically low levels. Some banks are offering a whopping 0.01%.
The low savings rates mean has led to higher rates of debt repayment. In consumer credit, individuals are still making net repayments, with £0.5bn paid back in March. The effective rate on new personal loans remained at a low 5.03%, compared to 7.03% in January 2020.
Net mortgage borrowing was £11.8billion in March – lower than the recent peak in November 2020, but higher than the pre-financial crisis peak of £10.4bn back in October 2006.
The ‘effective’ rate on newly drawn mortgages rose slightly according to the Money and Credit statistics. That is the actual interest rate paid on new mortgages as opposed to what’s advertised. And it rose to 1.95% from 1.85% and compared to a low of 1.72% in August 2020.
No doubt some of the new borrowing is driven by the ending temporary stamp duty tax relief at the end of March, or so we thought. The deadline was then extended to June as we know.
Subsequently, this enthusiasm from buyers hasn’t been matched by the same enthusiasm for selling, and the market has had issues with supply/demand.
The excess of buyers versus sellers is at the largest seen in the past ten years. The number of potential buyers enquiring about each available property 34% higher than in the same period a year ago, according to Rightmove. The average stock per agent has also fallen to the lowest level since July last year – when the market was emerging from the spring lockdown.
If you buy Bitcoin, Dogecoin, Ethereum, or any other digital currency, is that just the same as gambling?
The recent volatility in the digital currency space means that Bitcoin is up 96%, Ethereum is up 371%, and Dogecoin is only up 12,718% this year alone. And that is the one crypto no one was meant to take seriously, according to the people who created it.
All this as Andrew Bailey, head of the Financial Conduct Authority, says that people who invest in crypto should be ready to “lose all their money”. Mainly because crypto is backed by neither the central banks nor the government.
To a lot of people, this is a good thing. But to some, this means that crypto is not a secure investment.
According to Bailey crypto is not a currency at all, “Bitcoin is a very volatile commodity. And we know relatively little about what informs the price. It’s an odd commodity as well, as the supply is fixed. If you want to invest in Bitcoin be prepared to lose your money – that would be my serious warning.”
The Governor said that financial regulators did not oversee “commodities” in general and that he was not immediately pressing for a change in the rules.
Indeed, cryptocurrencies do not have any intrinsic value, and this is what people like Bailey tend focus on. That does not mean that they have no value. In finance, there is such a thing as extrinsic value, and the price is made up of both.
Extrinsic Value = Price – Intrinsic Value
In general, successful currencies have six key attributes—scarcity, divisibility, utility, transportability, durability, and counterfeitability.
Cryptocurrencies have value because they can be used as a store of value and a unit of exchange. Bitcoin in particular holds up well against most of the six characteristics, some people thought that its biggest issue would be its status as a unit of exchange but businesses have started to accept it as payment.
UK taxis will accept cryptocurrencies from November thanks to a planned to roll out technology that will introduce consumer protection concepts from the traditional card payment industry to the Ethereum blockchain.
So despite these doubts over crypto, t as far back as March 2020 the BoE said that it was looking into the design of Central Bank Digital Currency (CBDC). Last month the Bank announced it would join forces with the U.K. Treasury in its effort to take creating its own virtual form of Sterling further.
Stock markets like facts. But they also enjoy a bit of folklore.
There is an adage in the financial markets: ‘sell in May and go away’, and many investors still listen to this advice religiously. But is it true? And are there benefits being missed or given up when an investor chooses one alternative over another? As with all things, I always like to start with the data.
The simplest way to test this is to look at the monthly returns across different markets over a decent period during the summer period – May-October. This can then be compared to the likewise returns during the winter – November-April. Plenty of data exists for the main markets from 1970 onwards, although we can exclude 2020 for obvious reasons.
Based on this data a few things stand out:
No! Why? Because markets do not go down on average over summer months; they just go up by less. share. So returns still tend to be positive but are just lower compared to returns during the winter.
This means investors risk losing out if they come out of the market for half of the year. Over time, the effects of this
Time in the market, not timing the market
literally selling in May and going away isn’t profitable because
To be distracted by short-term performance is always a mistake. And so is letting let your emotions take over your decision-making. A buy-and-hold investment strategy is likely to serve you best for any long-term goals.
If bitcoin can captures 15% of the global currency market (assuming all 21 million bitcoins in circulation) the total price of a single bitcoin would be roughly $514,000.
You can read previous articles here.
Hope you have a good week! See you next week.
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