New High for the Dow Jones Industrials Index

The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the late 1920s to 1932 as well as from 1944 until 1971 when the United States unilaterally terminated convertibility of the US dollar to gold, effectively ending the Bretton Woods system.

Wikipedia

Looking at the chart it seems that every time the US left the gold standard it triggered a sharp rise in share prices. Since 1971 the gold price has been free-floating and US shares have enjoyed a long-running period of mostly rising prices.

This makes sense. Like property and gold itself, shares are real assets. Without the gold link, money is just paper, which can be printed by the people who control the presses. This phenomenon has driven much of the long bull run since 1971. The rise in share prices is partly illusory, spending power has risen much less. Gold is doing well these days which is the flipside of the falling value of paper money.

Property Up 1000 Times Since The War

My simple rule is that UK property prices, in desirable areas, have risen 1000-fold since the war. This has been accompanied by a massive fall in the purchasing power of money. I remember the 1950s when my father had an income of £2,000 a year and a generous expense account. We lived like kings in a five-bedroom/five-bathroom country house with glorious gardens, two live-in servants and free use of the parks, farms and estates belonging to the Marquis of Abergevanny.

The only thing missing in my father’s vision of the perfect lifestyle (he already had a 20-years-younger trophy third wife) was a Rolls-Royce but the car he did have, an extremely rare Armstrong Chrysler, was great fun (we loved it as children, standing on the back seat with our heads sticking up through the sunroof and the wind in our hair) and looked much like a Rolls-Royce.

Now, if you want to live even remotely comfortably in London you need at least £2,000 a week and even with that, you will be counting the pennies. This is why governments in the new millennium are in permanent financial crisis because taxes are already at an insupportable, incentive-sapping level.

Taxes are Way, Way Too High!!!

They take 40pc of what we earn. National Insurance is on top of that, albeit capped. Capital gains are taxed at 40pc. They tax us heavily (stamp duty) when we move house (and there is council tax which already costs me over £10,000 a year). They add 20pc to the cost every time we buy something (VAT) and they tax our heirs heavily when we die (inheritance tax). No wonder they are thrashing around to raise more money. This golden goose has been well and truly plucked and I was tempted to use another verb that sounds very similar.

The tax system effectively transfers money from people who know what they are doing with their own money, homeowners and entrepreneurs, to those who don’t and are spending other people’s money, bureaucrats and politicians.

Back in the days of another of my political heroes, Ronald Reagan, they believed in something called supply-side economics and used it to reinvigorate the US economy. Before Reagan, New York was bankrupt. People forget but Reagan was a game-changer for the US and largely responsible also for the collapse of the ‘evil empire’ otherwise known as the Soviet Union. As Liz Truss realised we need supply-side economics now. The simple idea of supply-side economics is that lowering taxes has such a beneficial effect on economic activity that when you cut taxes governments raise MORE money.

Poor Liz is not part of the millennial zeitgeist. The bien-pensants fall about laughing if you even mention her name but the truth is she was right and they are the smug idiots on the wrong side of this argument. My idea of not just cutting but removing a major tax every year and closing down government departments to pay for it would make the British economy the wonder of the Western world but will they do it; not a chance?

The welfare state is similar in its permissive effects to coming off the gold standard. If you pay people to [claim to] be sick and to stay at home, surprise, surprise, a lot of people will do that. It’s good old supply and demand in action. Wales has forced that wonderful invention, the motorcar, to move more slowly than bikes, and horses, giving us a perfect example of the nanny state gone mad. Ironically, engine power is still measured in units of horsepower.

Do it my way and we could be the first-ever economy where even a homeless person could become a millionaire!

If only Reform UK would stop boring on about immigration and start to address the real problem which is the size of the state and the insane level of taxes needed to support it. I think if they did that they would (a) attract massive funding, (b) reset the political debate and (c) maybe even win an election.

So there you have it, Nigel, forget all the stuff that makes you sound, unfairly, I suspect, like a racist and confront the real issue. Maybe the man who took us out of slo-mo Europe with Brexit could reverse the relentless, initiative sapping growth in the size of the state in the UK and start slashing taxes.

All Immigrants Should Go To College

I have an answer to the immigration problem. All immigrants must go to university and take their final exams in English. If they achieve a respectable degree they can work and live in the UK but will have debts to repay. If they don’t achieve a decent degree we write off the debt and they go home, probably with a second language which could be handy. Many will want to come but that’s OK. We build more universities. It will be worth it to bring so many highly motivated, hard-working individuals into the workforce.

Ideally, as part of this program, we would export a lot of thuggish, brainless Brits to faraway shores but I don’t suppose that part of the deal would have much appeal. Maybe Austria would take a few. They seem to like brainless right-wing thugs. Sorry, that is a most unfair swipe at the land of Edelweiss and The Sound of Music. Leftwing thugs could join Hamas. It might be salutary for them to find themselves fighting the Israeli army instead of the British police.

US GDP Now Double Europe

I found this staggering statistic courtesy of Josh Glancy in the Sunday Times. In 2008 Europe and the US had almost equally sized economies at around $14 trillion. Since then Europe has inched higher to $15 trillion but the US has soared to $27 trillion.

So what is Europe’s response? In Britain, at least, if the rumours about the autumn Labour budget are to be believed – higher wealth taxes. Talk about a failure to realise that if you are in a hole stop digging. I used to be delighted that I was born British. I am beginning to wish that I had been born American. Is it too late to start a new life in what was once a former colony, for God’s sake?

It is down to the next generation to do something about this catastrophe but since, as far as I can see, they are part of the problem I am not too hopeful.

Josh Glancy, a man after my own heart, came up with this wonderful quote.

“A state which dwarfs its men”, wrote John Stuart MIll in On Liberty, “in order that they may be more docile instruments in its hands, even for beneficial purposes, will find that with small men no great things can really be accomplished”.

Right on Josh and John. I could not agree more.

Picking Favourites In The Dow Jones Industrials Index

Below are the 30 constituents of the Dow Jones Industrials

As you can see, the list is a bit old school, so in the new millennium, the Dow has been outperformed by the Nasdaq 100. Even so, it is performing well. Most of the shares in the list are doing well. The ones to avoid, using their mnemonics for identification, are INTC, NKE, PFE, VZ, WBA and DIS (full names in the lists above and below).

The ones I particularly like are AXP, AAPL, CAT, KO, GS, JPM, MSFT, RTX, TRV, UNH, V and WMT. I will show you one chart to give you a flavour of what they look like.

This is a strong chart. I have chosen 12 stocks from the list and they all have similar charts. You don’t get a chart looking like this without great fundamentals and you don’t get great fundamentals without a great story. It is a safe bet that all these stocks are 3G.

I have created a new list called the ‘Priceless” list. All my recent recommendations, made without prices, are being added to this list.

Share Recommendations (2 September 2024)

American Express. AXP

Apple AAPL

Caterpillar. CAT

Coca-Cola. KO

Goldman Sachs. GS

JP Morgan Chase. JPM

Microsoft. MSFT

RTX Corporation. RTX

The Travellers Companies. TRV

UnitedHealth. UNH

Visa. V

Walmart. WMT

One of the two with which subscribers may not be familiar is RTX which is an aerospace business. In a classic example of what I love about America, this is what they say they do.

RTX creates long-term shareowner value by focusing on opportunities that drive profitable growth. We are continuously improving in all that we do.

RTX website

Short and to the point. What more could we ask of any company in which we invest?

The other is The Travellers Companies, which is an insurance giant. Again the first thing they say they are all about is creating shareholder value. In America they admire profitable companies; they don’t think of profits as something that can only be made at the expense of everybody else. They see profits for what they are, a sign of success.

In a nutshell, you see the problem. In Europe and the UK, governments want to reward failure, prop up losers and do everything possibly to demonize and discourage successful people. In America, they want to reward success and as a result, they are successful. It is so obvious it is heartbreaking that so few UK politicians understand this simple truth and the ones that do are regarded with hostility.

If I were younger I would go into politics because, my goodness, there is a job to be done.

Strategy – Build A Diversified Portfolio of Great US Growth Shares

There are ETFs which track the US indices including DIA.

Any of these are worth buying but ETFs are a bit boring. A diversified portfolio of shares is more fun because of the regular reporting and news flow. Nothing boring about leveraged ETFs, of course, but they have this weird dilapidation problem. Sadly, nothing is perfect.