Weekend reading

Some good reads from around the Web.

A few of my investing friends are quietly furious at US Federal Reserve chairman Ben Bernanke’s announcement this week that he was going to pump $40 billion a month into the US economy indefinitely.

As well as buying mortgage-backed securities, he vowed to keep interest rates low for even longer than he’d previously suggested.

These are unprecedented moves, to some extent – an argument that it really is ‘different this time’.

And that’s what annoys my chums. Bearish about the global economy and stock prices (they are skilled but healthily stingy investors) they believe Bernanke is pulling the rug from under their feet.

I sympathize, to some extent. As I never tire of boring you with, I avoided buying a home in the UK because prices were clearly very elevated compared to both earnings and rents. Yet prices, especially in London, haven’t fallen half as far as I expected, mainly because the Bank of England cut rates to a 300-year low and held them there. It was unprecedented, and it seemed to me unfair.

So think my friends about Bernanke’s move. “He’s twisting my arm and forcing me to buy stocks,” one told me.

However I think my friends protest too much.

They are bearish about stock markets and the economy, because they believe the US has suffered a once-in-100 year debt bubble burst that cannot be wished away in just a few years. They think US consumers – the engine of global demand – will be on the racks for years.

Most of them also think that Europe is no further out of the woods than a bear who just headed a bit deeper in to ‘do his business’ in it.

I disagree with the depth of their gloom, but that’s not the point.

What is? That they can’t have it both ways.

If it’s a once a century collapse, I’m not surprised the Fed chairman is doing extraordinary things to combat it.

Furthermore, you could argue his buying $40 billion in mortgage securities is an attempt to replicate normality. It’s not unusual that there will be this much activity in the US mortgage debt market over the next few years – but that for the past few years that there hasn’t.

Will markets continue to rally on the news? As ever, who knows.

The FTSE 100 is actually only up 2% on the week, so much of the talk of euphoria is overdone, anyway.

p.s. I have added a Facebook “Fan Box” in the sidebar to the right of here, and overhauled our Facebook page. If you’re a happy reader of Monevator, then please do give it a click.

(And if you’re not a happy Monevator reader, then I have to ask why are you still reading? ;) )

From the money and investing blogs

Product of the week: Close Brothers Savings has just launched Premium Gold – a two-year fixed rate savings account paying 3.75%. I doubt it will hang about for long.

Mainstream media money

  • Jack Bogle on the secret of long-term returns – The Economist
  • Why is this popular investment strategy so awful? – Motley Fool
  • Big overview of upcoming pension auto-enrollment – FT
  • (The big) Apple creates a tech fund headache – FT
  • Keep ‘dim sum’ bonds off the menu – FT
  • Commercial property can pay – FT
  • Merryn: Extrapolate away, but nothing lasts forever – FT
  • Bank of England selling this £50 for £150 – Spink (and Telegraph)
  • 10 tips for getting the best mortgage [Images]Telegraph
  • An emerging market dividend fund – Independent

Book of the week: Thinking, Fast and Slow, which is reviewed above, is available for just £5.39 in paperback from Amazon, saving you £3.60.

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Further reading:

  1. Weekend reading: Easter edition
  2. Weekend reading: Je ne regrette rien
  3. Weekend reading: House price affordability

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