The Queen is dead. Long live the King.
The prime minister is gone. The prime minister is a goner.
It has been a momentous month.
Monevator captured the chaos well with a tweet (that I am saving for the grandkids here) showing how the UK’s index-linked bonds have fallen by 50%.
It is times like this that I realise I simply don’t understand bonds enough. I do not understand, for instance, why the index-linked bonds (blue in the graph below) have collapsed so much more than ‘vanilla’ bonds (whole market shown in yellow – which includes the index-linked bonds). Especially when inflation is in fact shooting higher than expected.
I am feeling thoroughly disillusioned with index-linked bonds. They represent almost half my UK bond position, having felt like ‘those bonds which *do* protect you from inflation’. For whatever reason, I have been sold a pup. By the time you read this I will have shifted my bonds position markedly towards the ‘vanilla’ versions while I still can (i.e. before the Bank of England’s temporary support expires in 10 days’ time).
But while in the UK we have been assailed with ‘woe is us’ stories in the media, it turns out ‘woe is everybody’. US equities have plummeted in September – who knew? – and while the GBP has not fared well it turns out that the AUD fell more than 3% against, imagine, the GBP. The news you don’t get in the UK.
My levered position leaves me really feeling the pain. The markets I target exposure to, weighted to my exposure, fell by 8%. And, surprise, so did my portfolio.
My leverage is back to record levels. This is frustrating but there is a key reason for it – I found myself withdrawing over £50k during the month from my portfolios for angel/venture capital commitments, among other things. So my margin loan increased slightly in size during the month – despite my best efforts.
I am significantly short of cash – hundreds of thousands of pounds so. This imbalance from my target is mostly in GBP – reflecting my (so far correct) expectation that the GBP will fall against the USD and EUR. Tho I am ‘overweight’ USD, this is still a USD debt position but thankfully a smaller debt than I would normally target.
My overweight position is a bit light on UK equities, and has generally been light on UK bonds too though at the time of writing the Bank of England intervention has corrected that imbalance.
In better news, I have just had the second biggest income month in my history. This comes off a poor July and August, so I can’t draw too many conclusions. If it wasn’t for the withdrawals I had to make in September this income would have helped me reduce the size of my margin loan. In fact I ended the month with over £10k of spare cash in unsheltered investment portfolios – this will all go towards reducing reducing my debt over the next couple of weeks.
Which brings me, finally, on to my energy usage. I’m now tracking energy usage more carefully than my financial spending – and I had a pretty good month. I managed to resist turning the heating on. I used significantly less than 2k kWh, including the electric car. Unfortunately, temperatures have just taken a dip, just as higher energy prices kick in.