UK Economic Downturn: Is ‘Squeeze’ Affecting Your Investments?

Two bits of news illustrate ‘the squeeze’ taking place in Britain. I’ll get to them in just a moment — and I’ll tell you what you can do about it.

But first, what is ‘the squeeze’?

‘The squeeze’ is a media term. It refers to the impoverishment of Mr and Mrs UK.

Prices are rising. Meanwhile many — especially homeowners — are seeing their real wealth fall. The squeeze is getting squeezier. This spells danger for the majority of UK investors.

HSBC reports that current account holders in Britain have less in their accounts than they did a year ago.

Last year the average customer had a daily balance of £1,050. Today it’s down to £1,000.

That may not seem like a big drop. Only 5%. But add that up over every HSBC customer that has eaten into their funds. Add in similar customers from other banks.

There’s quite a bit of money to be accounted for. What’s happening to it?

Some is undoubtedly being siphoned off into higher interest accounts. A rainy day is coming. We all know it. And Britons who can afford to are topping up the umbrella fund.

HSBC, however, reckons most of this money is going to meet the rising cost of living.

"People are really feeling the squeeze. There is definitely some strain there," says HSBC’s Joe Garner, using the media buzz word of the moment.

In the short run these two phenomena — higher savings and higher spending on essential goods — have the same investment implications. Money — or, to be more precise, wealth — is being sucked out of the UK economy. It’s going into savings accounts. It’s going to commodities producers abroad.

Where it’s not going is into the coffers of UK-facing companies. Take Northern Rock, the bank we all own. Today it announced a loss of £585 million in the first six months of the year. The reason? Homeowners are struggling to pay their mortgages.

Investors in UK-facing companies have already taken a lot of pain. I expect them to take more.

But if you shouldn’t invest in UK-facing companies, where can you invest?

Our answer is simple. Invest in those companies which are not overly reliant on UK earnings. Especially those making money in growing economies.

The best British companies have invested abroad. They offer a diverse, global opportunity that offers some protection from our own domestic wobbles.

Our investment team has picked out three such companies, which we believe you should own right now.

Taiwan — the original Asian Tiger

"What’s so great about Taiwan?" I asked.

"It’s got tons of cash and some of the best companies in the world," replied my colleague Manraaj Singh. "It’s like China, but 50 years from now."

Taiwan and China haven’t been on speaking terms for half a century. But that appears to be changing.

"Some of the best, most dynamic companies in China could be about to get a new lease of life," says Manraaj. "After the falls in Asian markets there are some fantastic opportunities out there. If these Chinese firms get access to Taiwanese capital... pow!"

Find out why an announcement last week could give the Asian investment story a huge shot in the arm — and what you need to do to get in on it.

Until tomorrow

Ben Traynor

Editor

PS My colleague Darren Hughes has been telling me about an intriguing little money-maker he’s sitting on. Check your inbox at 11 o’clock tomorrow morning for more details...

The Daily Reckoning - The size of the correction is equal to the claptrap that preceded it

Let us keep looking through our binoculars...

We are trying to see the big picture, trying to understand what is really going on. We can imagine ourselves like Caesar — watching the action at Alesia from a nearby hill — or like Lee looking at Cemetery Ridge at the Confederates tried to push back the Yankees. Which way is the battle going? Who’s going to sweep the field...who’s going to carry the day...? Caesar won at Alesia with a combination of strategy, planning, and discipline. But Lee lost at Gettysburg for lack of resources...bad luck...and bad tactics. And now...General Bernanke is losing too...

Yesterday’s news described another day of deflation. The Dow lost 42 points. Oil fell almost $4, to $121. The commodity index, the CRB, dropped 18 points. And gold lost nearly $10, ending the day at $907.

What to make of it?

You can read today’s Daily Reckoning in full here. P.S. If you enjoyed this article then we encourage you to sign up for the free Fleet Street Daily eletter. Learn what you can expect from today's markets -- and how to prosper in the face of uncertainty. You won't find more thought provoking writing anywhere on the Internet.

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UK Economic Downturn: Is ‘Squeeze’ Affecting Your Investments?

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Are your investments being hit by 'the squeeze'?