An anti-stagflation strategy: move back home
For us, the financial journalists, the credit squeeze is a lot of fun to write about. For you, the honest newspaper subscriber, it may not be so much fun to read about. This stagflation business – inflation and low growth all at once – is so depressing. You cannot look to the authorities for comfort. Your government blew all the cash in the good times, unless you happen to live in the Gulf or in China. Your central bank, desperately trying to sound both sympathetic and hawkish, is changing position more frequently than a presidential election candidate.
No, you cannot rely on others. If you are going to survive – perhaps even prosper – in a stagflationary world, you are going to have to be tough, resourceful and self-reliant. You will have to cope with a boss looking for people to fire, a tightwad bank manager and columnists who use words such as “stagflationary”. It is not going to be easy.
If you are a homeowner in the UK, for example, you probably have half a million pounds of mortgage debt, securely padlocking you to a house whose value is depreciating by £10,000 ($20,000, €13,000) a month. This is the financial equivalent of taking a swim while handcuffed to an anvil . What can be done? I suppose you could always hold your breath and hope the tide goes out fast.
On the other hand, you may have some savings. If so, it is vital to invest wisely. But where? Many pundits will have you believe that, in stagflationary times, “cash is king”. That all depends what they mean by “king”. After tax, a UK savings account will pay you less than the inflation rate, so the pundits are presumably thinking of the one-eyed-man-in-the-kingdom-of-the-blind sort of king.
It is true that cash has recently performed better than property and better than shares, with the FTSE 100 down about 15 per cent over the past year. Still, the savvy investor should be looking for inflation-beating returns. It is possible. According to the UK Office for National Statistics, the price of spirits is up nearly 10 per cent, milk, cheese and eggs are up more than 15 per cent, and the price of edible oils and fats is up more than 20 per cent. Here, surely, are the new investment classes. Had you sold shares last summer and stocked up on Nido and Mazola, you could have beaten the stock market by up to a third.
Past performance is no guarantee of future performance, of course, so it would be rash to jump headlong into a portfolio that is short on equities and long on powdered milk. Still, an investment strategy that would also see you through the collapse of western civilisation has something going for it.
Moving from investment tips to money-saving advice for consumers, there is good news and bad news. The bad news is that most things are getting expensive quickly. The good news is that the banks will not lend you the money to buy any of them, so the problem is largely academic.
You could refer to the lists of money-saving tips provided in certain newspapers, but I cannot personally recommend them. One “top 10” featured the following eye-catching tip: roll a lemon around on a flat surface before squeezing it, because this produces more juice. That is thought-provoking, but one thought it provoked was that the money-saving gurus have failed to reveal either for how long the lemon should be rolled, or how much extra juice would be harvested. I strongly suspect that calculated as drops of juice per minute, lemon-rolling does not pay the minimum wage. What is more, does anyone really look at a little dish of lemon juice and ruefully reflect that there is nothing for it but to squeeze another slice? As money-saving tips go, this is not much better than taking the batteries out of your doorbell and checking every minute to see if someone is on the doorstep.
Anyway, no amount of lemon juice is much help if you have been sacked by your investment bank and your monthly mortgage payment is due on Tuesday.
No, the really frustrating thing about stagflation is that, while there are people who are doing very nicely out of it all, emulating them is impossible. Take members of the Saudi royal family, for example. I will warrant that they are not rolling too many lemons at the moment, but the House of Saud is not the kind of organisation you can join by submitting a peppy application letter.
Shell tanker drivers are not in the oil billionaire league just yet, but should be pleased with a 14 per cent pay rise over the next two years. Economic commentators should also be hot property, but alas: no matter how great the supply of financial news, the supply of talking heads seems to keep pace.
Then there are the teenagers and young adults living at home. Despite being too young to know what stagflation is, they have perfectly positioned themselves to take advantage of it. The rising cost of fuel, food and services does not bother them: they do not pay for domestic heating or school fees, and they always borrow the car and leave the tank empty.
On the other hand, clothes, trainers, computer games, iPods, DVDs and even illegal drugs are all falling in price. Living at home is the perfect way to ensure a negative inflation rate, and by the time the little blighters leave, people will be giving houses away. It’s an ill wind, as they say.
Also published at ft.com, subscription free. First published on the FT op-ed page, 28 June 2008