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Trading and investing

Let’s Compare Bets gateway to trading and investing information. Learn how to trade sports bets and financial markets, or invest in financial markets and antepost betting markets. This section of Let’s Compare Bets is a sub section of our main website, Let’s Compare Bets.  Let’s face it, many things in life are a gamble, trading and investing are quite similar.  The outcome is unknown, but, Let’s Compare Bets aims to educate and provide visitors with the information needed to get closer to trading and investing goals.  Remember to bookmark Let’s Compare Bets or add us to favourites (ctrl D) so that you can find us again.

Trading

Trading what? Lot’s of things can be traded from, goats… if you are in the mountains of the middle east to financial assets.  Stocks, shares and commodities can be traded by normal people or people on the trading floor working in a high stress trading environment.  After the invention of the betting exchange even betting odds can be traded.  One in ten people trading online make massive profits.  Slightly more make small returns and the rest loss money.   This section investigates the types of trading and methods to make the path to successful trading easier whether it’s bet trading or financial trading. Better yet, join Let’s Compare Bets and get a free Betfair training document to get started on Betfair. Look right!

Investing

Investing is more long term than trading and favours a slower but more relaxed route to financial independence.  Investing  is more capital intensive but can be more rewarding in the long run.  Get investing help from someone making investing decisions right now. This section investigates investing techniques, publishes stock tips and has our very own portfolio.

Use the search box or the category list to search this section. Use the subscribe buttons to the top right to get the latest posts on Bet trading, financial trading, and financial investing.

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The spectre of inflation is creeping up on us

Deciding where to place financial bets on company sectors, mega trends, individual companies, and collective investments like investment trusts are effected by macro economic factors.  This post is intended to tackle the concept of inflation and how it’s going to affect where readers may want to invest.

Mervyn King Baron of Lothbury, former Governor and member of the Monetary Policy Committee, spoke at a speech in 2013 and said that he has worked during a really ‘nice’ period in financial history.  King coined the term NICE to mean a period of “non-inflationary consistently expansionary”, NICE.  Companies and the economy continued to grow without any of the negative side effects normally associated with economic growth.  Inflation is one of these negative side effects.  Products (food, petrol, housing, etc) and services (legal, accounting etc) remained affordable whilst more and more people where employed and experienced rising wages.  Not only where things affordable many things got less expensive, like, personal computers, and cars.

NICE was a consequence of globalisation (relocating certain industries and work to places in other countries particularly China) and technological advances (including supply side reforms such as automation) which kept a lid on inflation.  During the 1990s that worked very well, but what’s changed?  Debt.  An explosion of debt which started with the low interested rate policies of Alan Greenspan former Federal Reserve chairman (various factors went into the mix with those decisions including the Sept 11th terrorist attacks).

What’s happened now?

NICE turned into a period of low or no growth with disinflation (falling inflation) or outright deflation.  Times like these really bring into focus the importance of placing the right financial bets and investing wisely for the future.  Debt has been discussed in more detail on other pages in the investing section here on Let’s Compare Bets.  In short, the financial authorities want to avoid a period like the 1930s when there was a depression with falling prices and low unemployment.  A period where Al Capone held the keys to the whiskey cabinet and people where desperate to make ends meet.  Now, due to the amount of debt in the system financial authorities need inflation to keep the system working.  Inflation in wages, economic gross domestic product etc  helps to reduce the amount of debt as as wealth (or money creation) out paces debt.  Deflation on the other hand increases debt, as there is less money to pay interest and make capital repayments, which causes less disposable income for buying goods and services, or, less money for companies to invest for the future. An increasing debt pile, no employment, and a time like the 1930s.  For normal people this would mean a time where there is no whiskey, no job, and and lots of frustrated people.

Right now political changes are bringing a catalyst for change.  President elect Trump in the USA brings inflation friendly policies and rhetoric to the table.  He has openly criticised America’s central bank for policies which are now causing serious harm to the economy.  Especially the very low interest rates and the possibility of negative interest rates, which have various negative sides effects including making banks very unstable and causing pensions to be under funded.

President Trump plans to reverse some of the drivers of low inflation.  Reducing the free movement of people, like illegal immigrants crossing the Mexican border (which stops wages being depressed).  Reducing the effects of globalisation by using trade tariffs and spending big on infrastructure.  Low corporate tax rates have been proposed which should encourage USA Inc. to bring their case hoards back to the USA.  Also many companies will be encouraged to bring manufacturing back from overseas.  President Trump want’s Apple to manufacture the iPhone in the USA and to bring their massive cash pile back home.  With low tax rates and a population getting paid more money Apple may be willing invest more in the USA to secure their future growth, for instance they are rumoured to be entering the automatic car market.  Trumplation will also include big infrastructure spending paid for by creating money through the central bank (money printing).

Things are changing in Europe.  Trump seems very friendly with Nigel Farage who has been one of the main architects leading the United Kingdom’s exit from the European Union.  Apparently Trump doesn’t drink or smoke so it can’t be for the love of beer and cigars that Trump wants to cosy up to Nigel.  More likely is that President Trump supports Mr Farage’s view on Europe.  The UK was the first to leave Europe but the big question now is who will be next and when?

An exit from the European Union has been positive for the United Kingdom and has helped play a part in rebalancing the economy.  As the value of Pound Sterling dropped the price of imported goods have gone up helping promote supply side inflation.  Now we’ll have to wait and see if wages follow suit.  When wages start to follow suit interest rate rise won’t be far behind.  As the European Union continues to be remodelled there will be increased volatility in financial markets (prices plunging and rebounding), but, as an exit (sorry Brexit) has been good for the United Kingdom it would be good for other countries that leave in turn having a positive affect on the world economy.

How will inflation affect your financial bets

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House of cards, or, one small step for man but many steps for mankind

Investing money for the future is a topic we like to cover on Let’s Compare Bets.com. Sporting betting, financial betting, and investing all have roots in a similar place. Investing is not all that different from betting. For people who want to invest their money directly into financial markets there are striking similarities. To have a long term investment strategy you have to take a view or form an opinion about the future in order to improve your financial circumstances. A future that is shaped and moulded by a variety of different influences making the end result difficult to predict. This post will focus on how rapidly increasing technological progress will help shape the future.

In the same way as someone who really enjoys football or horse racing can take an opinion on the outcome of a match or race, this post is another in a series of posts analysing financial markets with a view to help investors: possibly people who want to take a ‘DO IT YOURSELF’ approach to providing for a pension, a nest egg, or helping your kids buy their first home. We will take a quick look into the past, then look at what is happening now, how things may turn out in the future, and then how we can profit from it. As anything in life remember to do your own research (DYOR) and caveat emptor.

Change is and has accelerated at an exponential rate at least according to Ray Kurzweil. So it’s worthwhile making a few pie in the sky predictions to help with our analysis not least because it’s makes an otherwise dry topic for some, much more interesting.

So what does the future hold for financial bets and investments?

Have you ever heard the saying ‘ you don’t know where you are going, until you know where you’ve been’. Before taking a journey into the future let’s look at what’s happened in the past that will influence potential returns on our investments.

A big trend affecting all financial investments has been intervention in financial markets by national central banks and actions of political governments. Recent history has seen a massive build up in the supply of money in society. Power in the world has been centred on a capitalist structure, which the USA has been presiding over as current global superpower. USA has overseen a massive increase in global wealth as a result of adapting monetary policy so that money itself is no longer linked to gold. A system that only had it’s roots in tradition. This was a system that worked on the notion that gold is a finite resource (as Gold was made in exploding stars and there is only so much of it available on earth); it has very good properties for use in industry; and for use as money. For instance it does not react with the environment causing it to degrade. For these and other reasons it has worked as a means to pay for goods or services. If the whole financial system and society fell apart people would probably resort to using gold to pay for things, as well as, trading skills and commodities like food.

Removing the link to gold in the monetary system allowed financial institutions to create more money by providing credit. Deregulation of banks and financial institutions amplified this trend. More credit for consumers, business, and organisations. Financial historians and academics have known that these problems have been building up for decades. Negative consequences have included a number of financial crises over time which have been getting bigger and bigger in line with the amount of credit and money in the system. Leham Borthers collapsing in 2008 was a result of this phenomenon. Many people have criticised the system since the crisis and the negative affects have been felt globally: despite this there have been significant positive affects.

An increase in the amount of money in the system has pushed up the value of various financial assets, from houses, land, companies, and commodities. Consequently people are more wealthy. People from around the world have benefited from an unprecedented increase in wealth, due to the affects of globalisation and free markets. Global financial markets and trade links have become more and more intertwined. Also people have been free to move around more easily. Despite there being massive imbalances in wealth between rich and poor significant numbers of people have been lifted out of poverty due to this process. Infant mortality rates have dropped and on various measures things have been looking increasing rosy.

Lehman Brothers was the bank that the Federal Reserve in the USA allowed to fail. It wasn’t to big to to blow a fatal hole in financial markets but almost. Since Lehman Brother’s a big force driving the future of financial markets and returns that readers here can expect on their investments has been central bank intervention in markets. They have been the ones keeping the wheels on the wagon.

Debt leverage and the amount of risk in the system is still very high and has not gone down since the last financial crisis but gone up. Let’s look at some banks to see what is happening now. Deutsche Bank is on a list of important banks to the global financial network of banks, insurance institutions, and financiers. Deemed to big to fail. In simple terms Lehman Brothers had assets of $639 and $619 of liabilities. Compare that to DB which has Assets of 1.64 trillion Euros and liabilities of 1.58 trillion Euros. Banks do something unique which is to account for their loans as assets. Essentially a stream of future interest payments. The trouble with this situation is that it only takes a small change how many loans are actually getting repaid to change the way the bank accounts for this debt. If they state in public via their accountants or via the credit ratings agencies that their loans are more risky (or less likely to be repaid) it will cause a domino affect with global repercussions. Another interesting stat for DB is that they have lent out 100 Euros for every 11 Euros of cash that they can access quickly. That does not sound so bad. There is a big BUT. The system has allowed all these loans to be classed as being low risk. In reality there is a lot more risk on their balance sheet than has be reported. A small change in the balance of assets and liabilities would wipe out DB and topple the first domino or rather multiple dominos. Just one more stat about DB before we continue. One of the assets reported on DB’s company accounts are financial derivatives. Derivatives introduce something called counterparty risk, which is the risk that either DB or the holder of the other side of the contract can not live up to their obligations. What is the value of derivatives that DB has? $72 trillion dollars. That’s right, $72 trillion. More than the money that the USA as a country makes in a year. Using dominoes falling as an analogy does not really do it justice. If DB goes down it will take HSBC and Credit Suisse with them straight away and the rest will be history.

So, DB is too big to fail and the authorities can’t let it happen. Who has been bank rolling and stabilising financial markets? It’s National Governments in the USA, UK, Europe and Asia. Banks in the USA have now been fixed. The UK has almost finishing fixing UK banks. Next it’s the turn of European banks. Europe has not really started the process of fixing the banks yet, as this example of DB shows. Germany is really the one that controls Europe’s financial authorities. Germany have refused to bail out Greece with their financial difficulties and have instead imposed austerity on the country. The trouble is that Germany sitting on the biggest financial time bomb of all and that’s DB. Specifically DB’s operations in the USA. Germany are stuck between a rock and a hard place. How can they bail out one of their own banks and refuse to bailout Greece (then there is Italy, and so on)? They’ll have to come up with something because DB is too big to fail. Either way it’s going to be another problem for the European project in it’s current state. The idea of a united Europe is being questioned and problems with DB will fuel the rise of populist political parties who want to leave Europe.

How have authorities stabilised the system?

By creating more money. Otherwise known in the media as printing money, which, is the same as adding zeros to the number for national debt of governments. Central Banks have used a range of methods including quantitative easing or money printing. The USA has done this to the biggest extent.

where, why, how to place your financial bets

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When will interest rates go up?

bank of england base rateInterest rates are the main tool of central bank monetary policy. Whether interest rates are increasing or decreasing affects many aspects of our lives.  What does the future hold for central bank interest rates?  For lay people it’s any ones guess.  For people who don’t want to rely what they are told in newspapers and financial media this post is for you.  Let’s Compare Bets.com loves uncertainty because ‘ Life’s a Gamble ‘, so let’s have a look on where we think interest rates are going.

Why is this important?

Governments, private individuals, private companies, institutions around the world have all come to rely on debt.  Europe (including the United Kingdom), USA, Japan, and China all fall into this category.  That fact is not necessarily a bad thing as these countries are all in the same boat relatively speaking, but, some of the numbers are still staggering.  Since the financial crisis global debt has gone up by nearly $40 trillion dollars, and rising.  That’s the number forty followed by twelve zeros.

Interest rates affect interest received from bank accounts, mortgage payments and hence house prices, commercial loans payments, how much lenders are able to lend, and the income that pensioners get.  In the UK and USA interest rates are at historic lows.

UK finances rely on the kindness of strangers to keep the wheels on the economy.  Foreign central banks, institutions, companies and private individuals invest in the UK because it is a good place to do business and they get a return on their capital.  This inflow of money plugs the UK Government’s current account deficit.  Interest rates play a central role in ensuring the UK government can keep foreign investors happy.

If something happens that makes a central bank rate rise necessary there would be negative consequences for certain types of asset.  Most notably property prices.  Property is the UK’s favourite asset.  Value of the housing stock drives large swathes of the economy, so, anything that effects it is worth watching. Owning a second property, is an implicit bet on house prices and interest rates to some extent.

A perfect storm for seriously bad implications for the UK economy would be something that forces the Bank of England to increase interest rates without their being a corresponding pick up in economic activity.  Rising interest rates are no problem for business when they have pricing power and can increase prices.  Increasing prices is difficult if peoples wages are not rising.  UK wages are not increasing enough to cause underlying inflation required for rates to rise.  So any rate rise would just make debt more expensive and leave everyone with less disposable income (or less net profit for companies).  More importantly it gives the Government a big head ache over how they will service their IOUs (gilts).   What could cause this to happen?  If the UK leaves the EU the value of pound sterling would likely drop (like it did after the UK left the European Exchange Rate mechanism in 1992).  A sudden drop in the currency could force the Bank of England to raise rates in order to protect it’s value to keep holders of Government IOUs happy.

Are we asking the wrong question?

Instead it could read will interest rates ever go up?  Economic dead lock may result if Governments are forced to do something called Helicopter Money.  Name by Milton Friedman’s metaphor of dropping dollar bills from helicopters for people to spend.  Japan is country expected to try this technique.

In reality it means Governments and central banks adding zero’s to their capital investment accounts with no intention of it being paid back to anyone.  Permanently increasing money in the system.  Which is basically what has already been happening for years.  The difference is that gilt maturities have just pushed back farther and farther, thus giving the illusion that it will be repaid.

Helicopter money is when money is created to directly finance public spending for things like infrastructure with no intention of paying it back.  High speed rail, schools, hospitals, motorways or nuclear power stations.

Low interest rates are a massive part of central bank policy around the world to keep debt under control.  Low rates are needed to help create the inflation required to erode the value of the debt as it is not possible to pay it back.

UK interest rates may not rise to normal levels for a generation.  Not going above 2% for some time.  It’s unlikely that rates will rise at all until Banks in the UK and Europe are fixed.   Experts believe that UK Banks will not have repaired their balance sheets until 2019 at which time they will be more willing to lend to business (which seems strange considering all the debt already out there).  However, lending to business should promote capital expenditure for expansion and new projects, as well as replacing assets.  This should help increase wage inflation.

European banks on the other hand only started realising the losses they hide in (or off) their balance sheets in 2014 / 2105 which is when the European Central Bank started quantitative easing.

The consequences of low interest rates include;

  • asset price bubbles in property and bond markets
  • the phenomenon of companies, especially in the USA, of borrowing to buy back their own shares to ensure their earnings per share go up. This help prop up stock market valuations.
  • reducing the incentives for people to save making the situation self full filling

Where would an informed investor consider putting money to get a good return now, taking into account the situation with interest rates?

For a bit of fun readers might want to check out our featured review. Fast, fun, and easy money my friends. Go to the review.

Infrastructure is a good theme because it should benefit directly from central back policy.  HICL Infrastructure Company Limited is a long term investor in infrastructure projects in education, health and transport. It is an investment trust and can be bought through a stock broker.  There is a good dividend history and momentum in the stock price.

Costain is an engineering solutions provider to the energy,water and transport sectors.  Among other things Costain is involved in the Government’s £15 billion road improvement strategy with funding secured for the next five years, and is a joint venture partner for delivering ‘smart motorways’.  Morgan Sindall is another company in a similar field more involved in construction, like social housing.

For how to deal with the coming interest rate and economic environment just follow the helicopters.  Life’s not so much of a gamble after all.

 

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