That means British government bonds, known as gilts, will necessarily fall (the amount of interest paid is fixed, so the yield rises through a fall in the market price of the bond). The fall could be very heavy for long-term gilts. For example, the 4.25pc gilt repayable in 2040 is at £170 with a “redemption” yield (which takes into account the eventual capital loss at maturity) of a mere 0.6pc. If the yield rose to the same level as the original interest rate – 4.25pc – the price would fall by 41pc.
I should say that Prof Congdon’s view is a minority one. Yet many times in past decades he has been vindicated. I have now bought a small number of units in an ETF that is “short” on gilts: the fund will rise if gilts fall, and vice versa of course.
I will put much more into the fund when I see a falling trend in gilts begin. By the time you read this I aim to have gone short on long-term American Treasury bonds. This potential future of rising interest rates is likely to hurt shares, too. But in the short term they are being helped by the rising money supply.
Meanwhile, I took a nasty loss on a firm called Tissue Regenix last month. Soon after 4.30pm on May 21 it announced a massive issue of shares at a heavily discounted price. The new shares will account for the vast majority of the enlarged share capital. The offer was open only that afternoon and evening. Institutional investors, ready and waiting at their desks, could subscribe easily. But those of us who hold our shares via an Isa or who did not happen to be looking at the stock market late that afternoon have missed out. The price immediately halved the next day.
It is a scandal. Small shareholders, including myself, have lost half their money, while the institutions are fine. The City regulator refused to make any comment about this.
Tens of thousands of regulators now hover over financial services. When I started in the City in the 1970s there were far fewer of them, but no such disregard for the interests of small shareholders.