Focus is key

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The call is between deflation and inflation, but to me it is obvious we are in for a giant bout of global inflation.

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These are very difficult times to invest. The sword of European disintegration hangs over all our heads and a failure today by those that lead us will set Europe fast down the road of financial disaster.

This is not because of an accident of management but by design. Inflation is the only way to normalise all the problems confronting the west. They are deficit, debt and post bubble economic distortions concreted into a diabolically complex furball by the politics of society.

Inflation is the great chronic leveller. Most folks are sadly innumerate and they don’t grasp the scope of how inflation grinds away and turns their cash assets to dust. The slow process readjusts values, wages, pensions, costs, debts and lets their notional financial value float freely. Like all processes at extremes inflation will tilt us all into the abyss of the Weimer and the collapse of the Pengo, but as a tool of creeping debt default and realignment if it is kept into some kind of control, the past liabilities and financial dynamics are corroded away to nothing.
With this though in the back of my mind investment horizons look rather dim.

What do you buy against such a backdrop.

The answer is value.

Focus is key.

So I have been buying RM. The education computer company. They looked cheap at 100p, and then cheap at 75p and ludicrously at 40p or so. Its pretty hard work to follow conviction when the price keeps falling but in hard times you cannot expect to do well quickly, only position yourself for the future.

However it doesn’t take long for the tide to turn, so there is nothing for it but to follow your thinking, to hell with the very short term. Meanwhile you sanity test assumptions, while ploughing ahead.

I normally hold 50 stocks. But I bailed out completely the day before the US got downgraded and have been slowly returning.

I have bought a big chunk of Lloyds at 28p on the basis that a terminal crash will kill everything but a bounce will be very good indeed for Lloyds. A terminal crash would leave me jumping in with the bulk of my cash in tack, so the Lloyds position acts like a leveraged option on a recovery.

So far so good, but in a few hours Sarkozy and Merkel will speak and issue in a new financial era for Europe. The balloon may go up if they put even a foot wrong.

(At this point I got up and sold my Lloyds)

Such is investing in these wild times.



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