Juggling Dynamite

CNBC anchor Steve Sedgwick has penned a refreshingly candid commentary on the spending and debt abuse plaguing his native Britain today. See Spend now and pay never: a very British obsession.

My generation, the forty-somethings that should know better are just as bad. Most people I know drive a brand new or nearly new car. They don’t own it, they just drive it. Nobody bothers saving any more, they just prefer to pay an extra 7 percent on a personal contract purchase, which means they pay an auto company, or an auto finance company, 7 percent for the privilege of borrowing a car they most likely will never pay off in full.

Saving is apparently pointless with pathetic QE-inspired interest rates. According to the ONS, U.K. savings fell to 1.7 percent in the first quarter of 2017. The Germans, incidentally, still save at around 10 percent despite negative interest rates over at the ECB.

This is the time bomb and everyone knows is ticking even if they are too busy in the pubs and restaurants, the car dealerships and the queue for the new iPhone to acknowledge it. With UK inflation providing a potential uptick in rates at some stage how long before our “have it now and pay for it never” attitude comes home to haunt?

I would add that similar financially destructive behaviors are obvious all over Canada today as well.  Actually, in the race for highest debt to GDP, Canada (in 0range) is beating the UK and lagging only Japan (light grey), as shown here.
This is no free spending spree.

We will pay in the end, through rising financial instability and social problems, capital deficits, falling cash flows, defaults, bankruptcies, write offs, more job losses and of course, higher taxes.

When I wrote my book Juggling Dynamite in 2007 and launched the blog thereafter, it was to warn and alert readers to the untenable personal risk they were facing in following conventional financial and investment planning, theories and managers.

While the truth of my message was made evident in 2008-09, just as it was in 2001-03, concerted prestidigitation over the past 5 years has bailed out and reinvigorated the self-serving financial sales force, while managing to paper over truth, induce complacency and seduce savings into harm’s way once more.

As a result, today we are still living through the secular bear period born from record financial leverage and asset valuations that have driven capital risks way up and return prospects way down,just as an aging population can afford losses less than ever before.

After more than two decades of daily effort to reveal truth and steward life savings on a sustainable path, I must admit that I have come to a sad conclusion:  there is a common darkness in human nature and money.  When it comes to financial hardship, most people play a leading role in their own suffering through not wanting to see facts and in believing those who tell them they can save less, gain and spend more by buying magical products and services.  The bulk of the financial industry preys on the propensity of gullible people to believe/hope for an easy way out.  No doubt this is the same reason that a multi-billion dollar industry of diet products enjoys a steady stream of buyers hoping to look fit without having to maintain the daily personal discipline in support of their health.  But I digress.

For those who do want to help themselves and others they care about, facts must be faced, the sooner the better.  To that purpose, it may be helpful to read and share this article:  3-Reasons To Question Your Advisor’s Every Move.   It’s a good refresher course on some of the material in my book.

Investment cycles come and go, but certain truths remain the same. The most useful time to provoke awareness and take meaningful risk mitigation is before the third -50%+ market downturn since 2000 hits. And it’s now overdue.  Understand why and spread the word.

White’s candor in this clip is rarely heard in finance, and his list of solutions and fixes are inevitable because, as we have known forever, we cannot fix insolvency problems with more debt and central bank spewed liquidity.  The payback period just gets longer and more socially devastating.

OECD Economic and Development Review Committee Chairman William White discusses concerns he has about the economy. Here is a direct audio link.