Enjoy cheap money and cheap goods... while you still can.
We live in the Age of Cheap.
We have cheap money, with base rates falling from 5.75% in July 2007 to 0.5% this year. Interestingly, that final cut came exactly four days before the 9 March stock market recovery.
We have cheap-ish oil, with the price of a barrel of crude dropping from last year's peak of $147 to as low as $37. We have cheap commodities, up massively since the spring, but still well below their 2008 peak. Cheap stuff in the shops, with 2.5% lopped off VAT, and retailers battling to slash prices. Cheap pounds, cheap dollars, and of course cheap (and often downright trashy), shares, with the FTSE 100 bottoming out at 3,512 in early March.
In light of last year shocking meltdown, the Age of Cheap has been astonishingly cheerful. It has been a great time to go shopping, but be warned, it isn't going to last forever. In fact, its end could come astonishingly swiftly.
Cheap as chips
Money is the cheapest it has been in the UK for 316 years. Debate rages over how long low base rates will last, some analysts say they could stay low for years, others believe inflation is on the blocks, waiting for the starting gun.
Cheap money has saved the UK and global economy and spared tens of thousands of people the agony of losing their homes. It has also slashed hundreds of pounds off my monthly mortgage repayment, for which I'm grateful.
I've recycled most of the savings into my investment portfolio, and I'm not the only one. Investors and institutions all over the world have done exactly the same, but on a much grander scale. Share prices have recovered far faster than the real economy, which is still bumping along the bottom, and sensitive to further shocks.
Cheap money sparks asset bubbles, and disproportionately reward investors for taking on too much risk. We all know how that ends.
Pump it up, baby
Cheap money wasn't enough on its own, so governments have been frantically launching fiscal stimulus and quantitative easing programmes, pumping even more cheap green stuff into the global mixer.
The money hasn't always ended up where it's been intended. Many people fear that Beijing's mighty 4 trillion yuan (£359 billion) stimulus package has blown a property and stock asset bubble.
UK banks are under political pressure to start lending again, but they don't want to take a chance on shaky businesses or indebted-individuals. Instead, they have been throwing money at those least likely to default, the super-rich, who have in turn been throwing it into property and equities.
Cheap money, fiscal stimulus and quantitative easing were designed to save the global economy, not create another asset bubble. But the early signs suggest that it is what has been happening.
Over a barrel
If there is one single factor that could torpedo the stock market recovery it has to be the oil price, and the bad news is that it's on the way up.
Oil famously hit $147 a barrel shortly before last year's meltdown, and high prices at the pumps may have had something to do with the last autumn's crash in consumer confidence. High oil prices invariably end in recession.
Oil has more than doubled from $37 and recently hit a 12-month high of more than $80, driven as much by speculation as demand. It isn't cheap anymore, and if it keeps rising, we could all be in trouble.
Nothing lasts forever
Commodity prices have rallied, and although you may still be tempted to ride the commodity boom, you could come a cropper. Shares cost nearly 50% more than in March. VAT reverts to 17.5% on 1 January. Life is starting to get expensive again.
Rising energy prices could push up inflation, which will push up interest rates, at which point you can wave goodbye to the Age of Cheap.
Bubble after bubble after bubble
The Age of Cheap has been lots of fun, and has lasted longer than you think. It began at least a decade ago, in the wake of the dot.com crash, when Alan Greenspan et al were happy to let cheap money replace the tech bubble with a property bubble.
Now central banks and politicians are repeating the same strategy, using cheap money to create an asset bubble, to counter the property bubble that was blown up to replace the dot.com bubble.
In the end, we could end up paying a heavy price. Cheap money has spared us a kingsize hangover we deserved after our recent borrowing binge, but we can't go on blowing bubbles forever, can we?
The Age of Cheap has to end sometime. Is your portfolio ready for it?
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