Private Investor: If economists start agreeing, be worried

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The Independent Online

I've got a bit of a bad feeling at the moment about the whole economy thing.

You see I've been looking quite closely at what all the economists have been saying recently about where we're headed and there are two things that disturb me.

First, they all agree – which is always a bad sign. They all seem to think that while we're going to get some inflation and interest rate rises over the next few months, neither will be too much to sweat over and the pain, such as it is, will soon be over.

Now I think I've heard this sort of thing before, indeed I think that's how most economists always talk when there's a dirty great recession on the way. There's safety in numbers too, which is why you tend to get a bit of a herd instinct and a consensual view. if I can put it in simple terms: things usually get much worse, or much better , than the incremental changes most economist predict.

At the eminent I think things will get rather worse than they say. I simply don't think that all the inflationary pressures that have built up during our long boom – pressures which are growing internationally too as the Chinese, Brazilian and Indians bid up the price of commodities – can be relieved by nudging up bank rates by a quarter point every few months. The bank has never, since the Monetary Policy Committee was formed and operational independence was started in 1997 – put rates up even by a half a point.

If I was running things, I'd have put them up by a half point, or even a full-blown one percentage point, months ago and frightened the inflationary dragon away for years. Gestures like that can make a difference and it is usually better to kill off inflation before it gets established.

When it comes to inflationary expectations I just don't think people take much notice of these tiny baby steps; they need the sort of great clunking fist slapped on on them like chancellors used to be able to do before the bankers and economists took over running monetary policy. Politicians may be dirty rascals but they also have a shrewder idea of the public mood, if only because their jobs depend on that rare skill.

The second thing that worries me is that we'll follow the American pattern now and see whatever our equivalent of "sub prime lending" is begin to falter and that, like some of the hedge funds over there – some of our more exotic financial deals will begin to unravel.

No one said that the American housing market would have a downturn yet so it has come to pass. Much the same could happen here, though no doubt the superrich will be OK. In case you hadn't noticed, we now have a two-tier economy; central London versus the rest of the UK.

And what conclusion do I draw form all this? First, that there's case for adjusting the old portfolio to take account of the recession-ette I reckon is on the way. That's why I got rid of some of the stuff more exposed to the housing market such as Alliance & Leicester and sold down part of my Rightmove holding. However, I'm not going to do the same with Savills, the up-market estate agents, because I do think they're in a different sort of game than most of the UK-based businesses. They're big in the Far East, which is an excellent long-term growth tale, they're into "wealth management" and there's plenty of that about, and they're into that rarified central London property market. So I'm sticking with them, even though they've had a bit of a rough week; a buying opportunity if you ask me.

The second conclusion I draw is to draw no conclusion. If you are serious about equities, you have to look, I'd say, at a 15-year timescale, and probably more, by which time the squalls and recessions and booms and busts get washed out.

My advice is: ignore economists, keep buying shares, take your own risks, do your research and never panic. Not even if the value of your house starts to slump. I think we'll have to get used to more volatility in property too.

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