When cash isn’t king

I hope this finds you keeping safe and well? This update wasn’t what I wanted to cover this time around but given we have seen some recent topical announcements I felt these areas would be of more interest for now.

Of late we have seen the Bank of England hold interest rates at an all-time low of 0.1% with further talk of negative rates. This is creating and really poor savings market in the UK which we are all feeling. 

Looking solely at savings rates the vast majority are now under 0.9%.  I have been commenting for some time that getting a rate above 1% is good but now it seems getting above 1% is near on impossible. 

For all that may have heard of my affection of Premium Bonds these have finally seen a reduction in rates. Savers will soon have a one-in-34,500 chance, against one-in-24,500 now. 

They are also slashing the number of £100,000 prizes from seven to four and £50,000 prizes from 14 to nine.

This doesn’t mean I don’t like Premium Bonds anymore and they do have their place. They do offer a suitable home similar to cash and with low interest rates what are you losing by holding them? 

To put this into context right now £10,000 in a saving account will yield on average £60 per year. 

It’s not life changing money and we all won’t be retiring to a desert island somewhere to live on the interest. 

Seeing as I have championed them for some time, I do feel this was somewhat of a kiss of death, given my comments on Marcus Bank in the past, (commentary dated 21/06/2020).

Cash will always be held up as being king, but is this really the case? With low rates the only saving grace right now is extremely low inflation. The last reported figure was 0.2% and this was partially driven by the “eat out to help out” scheme, which we all know has come to an end. 

My views remain the same on inflation this will go up and this will create a planning issue IF rates do not go up hand in hand. 

We have seen a race to the bottom with prices and as consumers we expect to keep seeing the price of goods reduce. 

It would have been expected to see supermarkets make mega profits during lock down, but this wasn’t the case seeing as the goods cost more to secure and then distribute. 

Price increases are coming, just look at the cost of petrol and diesel we are seeing it creep back up as demand rises. 

The stamp duty holiday has created demand and mortgage approvals are on the up but the deals on offer are actually reducing.  Lenders are savvy to furlough income and some borrowers are now feeling the impact of being on furlough or having a mortgage break, if they want to move. 

So, property is selling and sold boards are being put up, but will these sales actually complete? I have a keen eye on the land registry completion data. 

Apple finally made it to be bigger in size than the whole of the FTSE100 combined recently and it just goes to show how big these new world companies are. We have seen a selloff in technology stocks globally as the concern is how big can they really get and still grow. 

Selling any of the larger technology stocks will move the markets given these are such a large part of their respective indexes. These modern stocks are here to stay and will continue on their world domination for a little while longer I feel.

As we move to close off quarter 3 of 2020 it’s been a very challenging year for us all and as we can see from the markets just the other day restrictions and lockdowns will move these seeing as positive cases not only here but in Europe continue to grow day by day. 

Is this the second wave that was predicated, will this now see a true W shaped recovery? Only time will tell on this and we could well be sat in the eye of the storm for a little while longer, with things getting worse before they get better. 

There remains to be some glimmers of positive news and with data now at hand we can see money is being spent in the UK.  As I have said before we are a consumption economy and we need people to spend. 

The balancing act is well under way and we all hold our breath now as to what is actually coming next with the new job scheme to be announced later on today. Will this be enough to give the markets a push forward and some further stability which is still needed. 

As always, we are just at the end of the phone and I would always recommend that you look at your own affairs in their own right, not the broad-brush media light which is still being reported as all doom and gloom.

Best wishes,