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Chavs, Wags and Grace Kelly

Last week, I chaired the autumn IQ roadshow for the good, good people of Artemis, Henderson, Ignis and Jupiter and enjoyed the experience of playing ringmaster to an unusually balanced programme that covered UK and overseas equities, specifically China – as well as bonds, commodities, cash, currencies and property.

Was this a conscious effort on the part of the organisers and sponsors? I could not possibly comment although it certainly beat the two-day event I chaired in Athens a few years back, where seven of the 12 presentations concerned fixed income. Quite apart from that being a raging (and ultimately correct) “sell” signal, the sight of all those delegates being stretchered out over the course of the conference still haunts me.

In my capacity as an alleged financial columnist and co-author of a book on emerging markets that has even been known to break into the top 100,000 of the Amazon best-seller list, event organisers occasionally ask me to offer my thoughts on the investment outlook. However, the IQ mob evidently felt they had found a better option in the shape of a William Littlewood of Artemis.

To be fair, I reckon he might be one to watch for the future. Certainly, his macroeconomic views and ideas on where to invest were a most helpful way of setting the scene. I particularly liked his thoughts on inflation although – as I have been meaning to do for some weeks now – I will first take this opportunity to bring in Smith & Williamson head of fixed interest Chris Lynas on the subject.

All year, this column has stood behind the view that inflation v deflation is too simplistic a way of looking at things and in fact elements of both co-exist in the system. This was neatly illustrated by Lynas recently when he aired the twin concepts of “Chav inflation” – goods prices going down – and “Wag inflation” – services prices going up.

“A little bit of inflation can be dealt with by central banks but a little bit of deflation is immensely damaging,” he added. “It’s like those coastal roads in the south of France – one slip one way and you’re on the grass, one slip the other and you’re Grace Kelly.”

For his part – and rather less vividly – Littlewood took the view that, in the medium to long run, inflation is “almost inevitable”, not least because it is the only realistic way countries such as the UK will be able to pay off their debt.

Absolutely. The way George Osborne sticks to his line about addressing the UK deficit through 80 per cent cuts and 20 per cent tax rises is endearing but also disin-genuous – at least I hope it is that rather than clueless. How would you call the real proportions? Maybe 75 per cent inflation, 20 per cent cuts and 5 per cent tax rises? Littlewood suggested no figure himself though he did describe inflation’s role here as “default by other means”.

Turning for support to the big guns, he concurred, economist to economist, with Fed chairman Ben Bernanke’s statement eight years ago that “the conclusion deflation is always reversible under a fiat money system follows from basic economic reasoning” and added it is “easier to crank up inflation than cut it back when it is out there”.

Anecdotally, which is much more this column’s style, Littlewood said the inflationary effects of Chinese demand would not be restricted to the recently ramped up cases of “lucky” 2008 Chateau Lafite but, looking ahead, would hit the West’s cost of living through higher prices of oil, cotton and so forth.

So how did Littlewood answer his own question of where to invest? He offered each audience a choice between going with Bernanke – now embarked upon a $600bn bond-buying spree on the back of a “massive 30-year bond bubble” – or the world’s most successful investor, Warren Buffett, who last month said: “It’s quite clear that stocks are cheaper than bonds. I can’t imagine anybody having bonds in their portfolio when they can own equities – a diversified group of equities.”

Ouch. Since Athens – and with great respect to the Lynas turn of phrase – I have always been moderately grateful whenever there is no dedicated bond fund manager on an events’ programme. That went double last week.

Julian Marr is editorial director of www.marketing-hub.co.uk and www.thoughtleadershiplive.com

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