Economic ideas #financefriday

The world economy still looks like it slipping into recession. The heads of the central banks say they have the “tools” to control inflation but inflation is way beyond the 2% target in the UK.

Stock markets

Stock markets have been volatile again this week. the high oil price is feeding through to keep inflation high and consumers are spending less, fearing high energy and fuel bills next winter. The London stock market is favouring the oil majors with Shell and BP still good bets and delivering quarterly dividends. Rolls Royce has been making modest gains as air travel resumes and they also have other interests like SMR power stations being in favour as the world looks for alternative energy sources. Brewers like Marstons are out of favour but there are people who will go to the pub, no matter what. I think Marstons is still a stock to watch. I’m also favouring house builders like Taylor Wimpey. I’m not sure why but Shell is up today while BP is down.

Be brave

Warren Buffet said to be brave when others are fearful, or was that greedy? When the markets are down and people are fearful that is usually a good time to buy. The best time to buy was at the height of the pandemic and that was when I bought the oil majors and into banking. Now we could be going into a recession so maybe it is a good time to wait and watch for when the market hits bottom? I suspect oil prices will be high for some time and we are slipping into a recession but things could change dramatically. If Russia pulls out of Ukraine we could see the stock market soar to new highs conversely it could fall even further if the war there gets worse.

Discretionary income

Everyone is finding that their discretionary income, that income left after paying for all the essentials, is falling fast. Discretionary income is the money we use to go to the pub and take holidays. It is the income that we spend enjoying life and it is falling fast. Investments can add to discretionary income giving us more money to enjoy life. Investing can mean less money to spend today but more money in the future too. Many people are looking forward and saving money for what might be a hard financial winter. There is even talk of natural gas being rationed next winter. Covid hasn’t gone away either, we still need to be aware of that threat and be cautious. Investments and money in the bank give us security and some peace of mind.

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