Edge Newsletter #20 - More interest rate rises, recession on the horizon?

What I’m watching

A Business Insider micro-documentary on making soy sauce the traditional way by ageing in wooden barrels, which can take up to 4 years. An art that’s dying out. I’ve always had an appreciation for artisanal crafts like this, especially in this day and age where quick profits are worshipped.

Resource of the Week

I recommended Google Domains a few weeks back. To go with that, I’ve been using Google Workspace. It gives you 30GB of drive storage, and you can use an email address with your own domain and other features.

Quote

Everything can be taken from a man but one thing: the last of the human freedoms-to choose one's attitude in any given set of circumstances, to choose one's own way.

Viktor Frankl - Man’s Search for Meaning

Thoughts

It has been an interesting week, with another interest rate rise confirmed and talks of a recession on the horizon. Naturally, it’s bringing on a lot of speculation about another property crash. Personally, I don’t see this happening in the next few years for a few reasons:

• There’s still a chronic undersupply of property. Post pandemic, the demand has far outstripped supply when compared to historical data.
• Leverage is still at very modest levels compared to the past, thanks to more robust mortgage affordability checks in place after 2008.
• We’re hearing about strikes left, right and centre, but against this backdrop, unemployment is at historic lows.

The chart below is taken from the ONS. Unemployment is at 3.8%, with the exception of the early 1970s, it hasn't been this low in the last 40 years. It’s very much an employee market with a chronic skill shortage.

I see the rhetoric from the news a lot that we’re in the economic situation we’re in because of Russia. This is complete rubbish. You can’t expect to create £1 trillion out of nowhere and not expect there to be severe inflation down the line. I’m not saying it was the wrong decision for QE, it was the best thing they could’ve done to prevent a deflationary depression in the wake of COVID. However, you can’t get something for nothing. Certainly not £1 trilllion.  The fact is, Russian war or not, this painful period was always to come. But now the government has something to blame it on, “Never let a good crisis go to waste” was how Churchill put it.

For us regular people, it just means we need to be pragmatic, stay grounded and not let the scaremongering get to us. There’s no doubt things will slow down, but property is still supported by solid fundamentals. I think in this backdrop, the risk of holding currency is extremely high. For those looking to invest, it’s more key than ever to make sure you cash flow positively, which will allow you to weather any potential storms.

Btw, I’ll be spending more time in London, if you’re in town, let’s grab a coffee next Sunday! I’ll be at Panagea Cafe near Liverpool Street at 12:00. Nothing crazy, just an informal chat in the sunshine. Best if you signup here (just so that I know who’s coming).

Have a good week!

Hans