Category: Economic

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What is Money?

Have you ever wondered; 

  • What is money anyway? 
  • Why do we trust money?
  • What’s that five pound note in your pocket really worth? 
  • Where does money come from and where does it go?

I’m guessing the answer is probably not. Money is just an everyday thing.  It’s there, we just spend it or save it.

Our own currency that we spend everyday is taken for granted, except when we travel and it’s no longer accepted as currency. Why is it even called currency?  Well the answer to the last question is indeed predictable. It’s the current value of our money versus other countries money. Which in itself begs the questions; 

  • What was our money worth previously? 
  • Was it worth more or less?

To answer these questions we need to go back a long way in time. To a time before money existed. 

Sapiens

I have read some very influential books in my time. Very few have been works of fiction. I’m intellectually poorer for that I guess. My Northern upbringing of seeking “value for money” has directed me solely to books I can learn from. One such book is Sapiens – A brief history of mankind by Yuval Noah Harare. Before reading this book I believed the Agricultural Revolution was the time before tractors. But no. The agricultural revolution was the time when primitive humans ceased to be hunter-gatherers and became the farmers of crops and livestock. Who knew? That transition changed everything. Prior to farming, life was free, but probably not easy.  Food was collected as needed, a free for all endless all you can find buffet. Once all the food was taken from one area, individuals moved on. A truly nomadic experience. Nobody was a landowner, primitive tools were the only possessions, used to dig for roots perhaps. Recent Bill Gates funded research wouldn’t have been needed back then, like today’s Aborigines, we would be happy obtaining protein from grubs. 

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The Stroke of a Pen

“the pen is mightier than the sword”

was first used by English author Edward Bulwer-Lytton in 1839.

It seems 186 years later, the phrase still rings true. We have entered a period of extreme uncertainty for all global citizens, governments and of course for us investors. This week will surely be as gut-wrenching as the last.

Many powers around the world, China, Russia, Iran and of course the EU had become committed to the idea that the US was not the Superpower it once was. It could be challenged and nibbled at continually, without provoking a response. Three terms of Obama in power, (no, I don’t believe I’ve made an incorrect statement here) have lead to much of the world believing Uncle Sam is a spent force. With the stroke of a pen, actually with very many strokes of the pen, Trump has unleashed the only bargaining tool he holds – the keys to the US consumers spending habits.

Bombastic, Bully, Stupid, Oligarch, Orangeman, Criminal, Failed Businessman. All probably true of the man to some extent, but of one thing we can be sure, he has huge Cahoonas and follows through on his campaign promises.

I have pretty much devoured every quality article written so far to try to understand the rationale, but more importantly to plot our course once again, now the wind has swung through a full 180 degrees. So far the best reasoning has come from Eoin Treacy, who is a member of our own investment committee. He writes….

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Market Corrections

There have been 27 market corrections since 1974. There’s no universally accepted definition of a correction, but most people consider a correction to have occurred when a major stock index, such as the S&P 500® Index or Dow Jones Industrial Average, declines by more than 10% but less than 20% from its most recent peak. It’s called a correction because historically the drop often “corrects” and returns prices to their longer-term trend. 

Even understanding that corrections do occur regularly, often doesn’t help investors with a propensity to worry to handle these setbacks. Every significant reversal from an upward trend feels like a punch to the stomach.

Regular market setbacks are a function of the system, not a glitch. Without smaller setbacks along the way, you can be sure a much larger crash will follow at some point. Usually all the factors that lead to a change in investment sentiment were already in place and accepted, until one day those same factors are perceived as unacceptable. Still we need to learn from these episodes and endeavour to understand why market confidence suddenly evaporates. I continue to read extensively and believe that one of my go to sources of information succinctly describes why the markets have been so upset, so quickly. 

Trump

On an obvious level the upset market is all down to Trump’s actions, but probably not for the reason the mainstream media has suggested. In most of the “quality” US financial press channels, Donald Trump, Elon Musk & Co are deplorables. Stirring hatred through clickbait grabs attention, accumulates viewers and readers, which brings in advertising revenue. So don’t expect a balanced view anytime soon from presenters and journalists schooled in never wasting an opportunity to present regular occurrences as complete crises. However don’t forget a large minority of the population of the US didn’t vote Republican and want to see him fail, many traders on Wall Street included. 

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