Gold Priced in British Pounds (GBP) – May 2010 Update

In absolute terms gold continues to climb in value reaching a new high of £839.93 (when compared with my monthly historic dataset which goes back to 1979) since gold started its upward climb in 2005. In the last month gold is up £90.32 an ounce however in real (inflation adjusted) terms as shown in today’s chart gold it is up ‘only’ £83.32 per ounce. In real terms that’s an increase of 11%.

Are the cracks starting to show in the Bank of England’s unspoken strategy

I’ve been suggesting for many months now and most recently here that the Bank of England want inflation which they think they can control. This is so they can allow the large UK government debt and the debts of the reckless general public to be inflated away (effectively a free bailout). Of course somebody has to pay for this and that will be the prudent savers amongst us. Additionally, keeping the Official Bank Rate at historic lows of 0.5% for so long, while allowing the inflation to occur, also helps the banks recapitalise themselves as they proceed to lend money out at rates far above this. Of course savers are again punished as the banks pay below inflation interest rates to the savers. So far (of course in my untrained opinion only) it’s all going to plan for the Bank of England except I saw a couple of cracks beginning to open this week.

Gold Priced in US Dollars (USD) – May 2010 Update

Within my Retirement Investing Strategy I currently hold 5.5% (up from 4.1% at the last USD gold update) of my portfolio in gold with a targeted holding of 5%. Gold is the only portion of my portfolio that does not provide a yield (dividends, interest etc).

Average UK Earnings – May 2010 Update

As we know inflation according to the retail prices index (RPI) year on year is currently running at 5.3%. This is the highest it has been since July 1991. Looking at historic RPI inflation data shows the average year on year RPI annual change since 1991 at 2.9% and the trendline since 1991 shows inflation year on year trending downwards. My chart today shows these RPI figures in blue.

Australian (ASX 200) stock market including the cyclically adjusted price earnings ratio (PE10 or CAPE) – May 2010 Update

To try and squeeze some more performance out of a retirement investing strategy that is heavily focused on asset allocation I am using a cyclically adjusted PE ratio (known as the PE10 or CAPE) for the ASX 200 to attempt to value the Australian Stock Market. The method used is based on that developed by Yale Professor Robert Shiller for the S&P 500. I will call it the ASX 200 PE10 and it is the ratio of Real (ie after inflation) Monthly Prices and the 10 Year Real (ie after inflation) Average Earnings. For my Australian Equities I will use a nominal ASX 200 PE10 value of 16 to equate to when I hold 21% Australian Equities. On a linear scale I will target 30% less stocks when the ASX 200 PE10 = 26 and will own 30% more stocks when the ASX 200 PE10 = 6.

US Consumer Price Index (CPI) Inflation – April 2010 Update

The above chart shows the US Consumer Price Index (CPI-U) to April 2010 courtesy of the US Bureau of Labor Statistics. Year on year the US CPI inflation index has risen from 213.24 to 218.009 which equates to 2.2% today (down from 2.3% last month). Annualising the last 6 months has inflation at 1.7% and annualising the last 3 months has inflation running at 2.4%.

UK Inflation – May 2010 Update

The Office for National Statistics has reported the April 2010 UK Consumer Price Index (CPI) as 3.7% up from 3.4% and the UK Retail Price Index (RPI) as 5.3% which is up from 4.4% last month. Regular readers of Retirement Investing Today will I’m sure not be surprised by this at all as the Bank of England have clearly positioned themselves to let inflation run.

A History of Severe Real S&P 500 Stock Bear Markets – May 2010 Update

Looking at the first chart which shows the real (inflation adjusted) S&P 500 (or its predecessor) stock market I have identified three historic severe stock bear markets. These I am defining as stock markets where from the stock market reaching a new high, they then proceeded to lose in excess of 60% of their real (inflation adjusted) value. These are best demonstrated by the second chart which shows each of these stock bear markets and the fall in percentage terms from the peak. So briefly what were these bear markets (full details here).

US (S&P 500) stock market including the cyclically adjusted price earnings ratio (PE10 or CAPE) – May 2010 Update

To try and squeeze some more performance out of a retirement investing strategy that is heavily focused on buy & hold and asset allocation I am using a Cyclically Adjusted Price / Average 10 Year Earnings (PE10 or CAPE) ratio for the S&P 500 to value the US (specifically the S&P 500) stock market. The method used is that developed by Yale Professor Robert Shiller however I also incorporate earnings estimates up to the PE10 month of interest. Background information here.

GDP per capita – BRIC vs PIGS vs UK, USA, Germany

We hear every day about the gross domestic product (or GDP) of countries. For example, it is always seen as negative if GDP is decreasing (by definition the UK enters a recession if there are 2 quarters of negative GDP) and positive if GDP is increasing. For the Average Joe on the street though I think GDP is not as important as GDP per capita which just doesn’t seem to ever discussed in the media or by government. For example:
- In an extreme I think if GDP started to fall but the population (through migration for example) fell at a faster rate then it is very possible that a person’s standard of living could actually be increasing. This is because the average persons GDP per capita would be increasing meaning that they should also be increasing their salary.

Australian Property Market (Alternate Data) – May 2010 House Price Update

The Brisbane and Australian Eight Cities (Sydney, Melbourne, Brisbane, Adelaide, Perth, Hobart, Darwin & Canberra) House Price Index published by the Australian Bureau of Statistics (ABS) catalogue 6416.0 suits my requirement to track Australian house prices as part of my retirement investing strategy.  It however has a big flaw for me by only publishing the housing data quarterly.

Australia, UK, US and the PIGS (Portugal, Italy, Greece and Spain) government 10 year bond yields – May 2010 update

I continue to monitor the 10 year government bond yields of three countries (Australia, United Kingdom and the United States) to try and understand when interest rates on savings and mortgages may start to rise with my datasets shown in today’s chart. In addition with all the excitement that is occurring with the PIGS I have decided to also dedicate a monthly chart to ‘Club Med’ (Portugal, Italy, Greece and Spain) also.

UK Mortgage Rates and Mortgage Approvals – May 2010 Update

Today I present two regular charts that as with last month continue to give me little information on what could be occurring in the housing market. The first shows the monthly interest rate of UK resident banks and building societies sterling standard variable rate mortgage to households (not seasonally adjusted) and highlights that for this data set rates remain at near record lows at 4.04% for April 2010 (actual low was 3.82% in April 2009). Compare this with the retail price index (RPI) of 4.4% and the average mortgage is better than free money with a negative real interest rate.

Investing mistakes I’ve made – shorting the stock market

As I’ve travelled down my chosen road of taking full responsibility for my retirement investing strategy I’ve made plenty of mistakes that have cost me money (and I’m sure I’ll make plenty more). I’d therefore like to share some of these with you over the coming months. Previously I covered contango & exchange traded commodities (ETC’s) and today I’m going to cover shorting the stock market.

Proud member of the Yakezie Challenge

When I first started this blog 6 short months ago I did so for a couple of reasons. The first was to hold myself accountable. I set myself an investment strategy based on strategic asset allocation with a tactical asset allocation mixed in to try and squeeze some extra performance and I thought that by publishing the strategy along with regular updates that I would stick to the plan. Well so far it seems to be working however only time with tell if my retirement investing strategy was successful.

The Bank of England continues with their unpublished strategy – UK Bank Rate held at 0.5%

The Bank of England today held interest rates at 0.5% for the fifteenth month in a row and decided to do no more quantitative easing (QE) for now. Meanwhile in the real world the retail prices index (RPI) has risen from 3.7% to 4.4% and the measure supposedly followed by the Bank of England, the consumer prices index (CPI), has risen from 3.0% to 3.4%. The banks must be enjoying every minute of this. It gives them the chance to rebuild their balance sheets by borrowing short term at what are effectively negative interest rates. They also don’t seem to need savers so give us two fingers through low interest rates on our savings.

Bulls, bears and the 200 day moving average

A search online for the 200 day moving average or simple moving average (200 dma or 200 sma) will reveal many hits and a lot of different opinions. Firstly what is the 200 dma? In its simplest form it is the average of a markets closing price over a 200 day period. To construct the average you add the last 200 days closing prices and divide by 200. Another form is the 200 day exponential moving average (200 ema) which is a little more complex and provides more weight to young price data and less weight to old price data.

The numbers just roll so easily off the tongue

Ten billion here, a trillion there. It all rolls so easily off the tongue as governments continue to both spend more than they “earn” and bail out banks & other institutions. How often though do you think about what these sums actually represent? That’s something I did today which I thought I would share. Firstly let’s try and appreciate what a billion dollars, that’s $1,000,000,000, is by looking at three images courtesy of pagetutor.com. The first sets the scene with a $100 note, then the second image piles these $100 bills into a million dollars and finally the last image piles these $100 bills into 10 pallets of money to give one billion dollars. Impressive isn’t it. Now let’s look at just two news items from Thursday.

Buying gold

Yesterday I made another purchase of gold despite me detailing here that it is still well above its historical average real (after inflation) price and real trend line price in US Dollars (GBP). The same also holds true for gold when priced in British Pounds (GBP). I made this decision after the monthly analysis of my retirement investing low charge portfolio detailed that I was still 0.8% short of my desired asset allocation.

Australian Property Market – May 2010 Update

I intend to keep a close eye on Australian house prices as I build my retirement investing today portfolio. This is because Australia is a very likely retirement possibility (if not sooner) for me. I do this by watching the quarterly releases from the Australian Bureau of Statistics (ABS) which is what the content of today’s post is however on a more regular basis I watch the data coming from RPData with my latest post here.

My Current Low Charge Portfolio – May 2010

Edited 06 June 2010: I have found more exact data allowing me to determine benchmark returns to the day. I have therefore updated the data in this post to reflect this.
Apologies for the confusion but I'm learning here too.
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Buying (New money): Since my last post I have struggled with my savings a little and managed to save only 53% of my after tax earnings and pension salary sacrifices. While I’m unhappy with the month’s savings rate I still believe it is well above the average punter on the street. Total new money entering my retirement investing Low Charge Portfolio was around 0.7% of my total portfolio. This were allocated as follows: 37.6% to cash, 9.4% to UK equities, 13.1% to international equities, 2.5% to index linked gilts and 37.4% to UK commercial property. This money was invested both outside of tax wrappers and also within a pension.

The PIGS or should that be the UPIGS

PIGS are an acronym for Portugal, Italy, Greece and Spain. Unlike the BRICS the PIGS have high government debt levels and high government deficits when compared to their GDP’s. Let me take a moment to explain debt and deficit because given that the UK is currently letting governments get away with saying ‘we will halve the deficit’ without really being challenged I don’t think most people understand the difference.

NS&I Index Linked Savings Certificates – review of previous issues and why I think they suit me as an investment

Regular readers of Retirement Investing Today will already know that I personally think National Savings and Investments (NS&I) Index Linked Savings Certificates are a good investment class and I currently hold 19.7% of my Low Charge Portfolio in them. A previous post detailed why I like them however I wanted to learn a little more about them given my large holdings. A web search turned up very little so I have had to do some analysis of my own. I have followed a similar style of analysis to that of all the asset classes I invest in or someday would like to invest in (these can all be seen in the right hand side bar under Latest Charts) that I regularly post about however because of their complexity the analysis is not perfect but in my opinion more of a trend.

Average UK savings interest rates – April 2010 Update

My chart today shows that for those that are looking to save it still isn’t getting any better out there. If you don’t want to lock your money up for greater than 2 years (I know I don’t with what I see going on with inflation) then the average interest rate on savings accounts continues to decline.