Anthony Bolton predicts better 2009 for Investors

Legendary investor Anthony Bolton has predicted a better 2009 for investors.

He said in the Sunday Times on 14th Decemeber, “Everything I need to see for a bottom is there. Valuations look cheap and you often get this kind of high intra-day volatility at a turning point,” he said.

“All the pieces are in place for a rally in the first quarter. The first stage of the bull market will be quite strong followed by a long period of consolidation. In the long run the market could return to its peak [6,930 in December 1999] but it could take quite some time.”

Does he know what he is talking about?

From 1979 until 2007, Bolton delivered average annual returns of 20.3% , compared with 7.7% from the FTSE All-Share index in that period,

A to Z of 2008...Credit Crunch, recession, Iceland

2008 was a busy year for everybody in financial Services & a new star was born in Robert Peston, the BBC's Mr Credit Crunch.

Money marketing have a useful A to Z of the year's events. (not online so far)

eg Z is for Zero : the number of banking jobs left in Iceland

10 Reasons to use an Independent Financial Adviser : 1

1 We are independent. We are not tied to any particular group. This means our recommendations are unbiased & impartial.

Many advisers only have ties to certain product providers. This can generate higher commissions for the advisers involved. Always check for independence.

The question to ask, "are you independent & whole of market?"

To be continued

Xmas Luxuries at Lidl

In this months Observer Food Monthly, Allegra McEvedy prepares a Christmas feast with luxury items bought at bargain price at Lidl.

Can vouch for the smoked salmon, rollmops and creme fraiche.

In Swindon, the store is in Gorse Hill, take a coat..the heating seems to be turned down!

http://www.guardian.co.uk/lifeandstyle/2008/dec/14/cheap-christmas-dinner

VAT Reduction of 2.5%

Will Alistair Darling's 13 month reduction of VAT by 2.5% have any effect on an ailing economy?

A client remarked to me last week that they would not rush into a shop advertising a 2.5% reduction..

One problem for businesses is re-calculating their VAT bills.

Pre Budget Report November 2008

Alistair Darling delivered his pre-budget report. The main points

• Temporary 2.5% cut in VAT to 15% from 1st December for 13 months
• New 45% tax band for those earning more than £150 000
• National Insurance to go up by 0.5% in 2011
• £60 Christmas gift for pensioners
• Phased increase in vehicle excise duty

The key question is that will the government be able to pay for the increased borrowing caused by events such as bailing out failing financial institutions and financing wars in Iraq & Afghanistan.

Interest Rate cut of 1.5%

As anticipated the Bank of England cut interest rates to 3%. The lowest in some 50 years.

Will mortgage rates come down?

That is the important question, banks and building societies have not been passing on reductions to consumers because they have been worried about their profit margins.

There are some lenders who would be able to lower rates substantially but are not doing so becasue of lack of competition in the market place.

Will savers be hit?

Yes, rates for savers will reduced much quicker than for lenders.

Recent Financial Events...September & October 2008

The last few weeks have seen some extra-ordinary events in the financial World. US & UK governments have refinanced the banking sectors and failing institutions have been bought up by rivals.

The Bank of England lowered interest rates yesterday (8 October) along with other Central Banks. The idea being to stop or lessen recessions around the world.

Events have been driven by fear more than reality. What we will see is more regulation and less risk, which is what consumers need.

Lehman Brothers & Merrill Lynch...why the fuss? Important in Swindon?

An extra-ordinary weekend has seen US Investment Bank Lehamn Brothers file for bankruptcy.

Secondly Merrill Lynch has ben bought bu the Bank of America.

Both companies were badly hit by having bought bad mortgage related debt.

There will be repercussions this week. The Bank of England & European Central Bank have provided more money today to help credit markets and it is predicted that the US Federal reserve will lower interest rates.

How does it affect the consumer in Swindon & beyond?

Lehaman Brothers & MerrillLynch have been at the heart of the credit crunch. The cleansing/purging of the 2 companies is part of the clear up process.

AS the process goes on then credit will slowly begin to be made available to banks....which will eventually mean customers will be able to get cheaper mortages (theoretically).

Cheshire & Derbyshire “saved” by Nationwide

It looks like the Cheshire and Derbyshire Building Societies are about to be taken over by the Nationwide Building Society. The Derbyshire is the 9th and the Derbyshire the 11th biggest societies with about 1 million customers between them.

The Derbyshire has been hit because it could not raise money on the money markets...the credit crunch again. Whilst the Cheshire had encountered some problems with its commercial property lending.

The Financial Services Authority has had a hand in recommending the deals to the 2 societies and the speedy negotiations which have taken place

Will there be any windfall payments?

Borrowers & savers with the Derbyshire or Cheshire should not expect any windfall payments owing to the problems they have encountered.

Can you trust the financial pages of National Newspapers?

Since the dawn of mankind there have been get rich schemes. The financial pages of the national pages abound with rich succesful people, the implication being that you are the only one not making any money.

Many a time the city editors encourage you to invest in a fund or company or asset that is high risk, has peaked in value and is on the way down.

Some examples from the last few years.

1 Invest in gold...it hit a high in April 2008 and the price has retreated
2 Buy to Let Property. Too many unwanted flats, falling house prices.
3 Bubbles in India & China in 2007

Possibly the worst re-occurring offence is to give tips on company shares as though they were horse racing tips (Thanks to Lawrence Gosling of Investment Week for that analogy)

The solution
Have a broad based portfolio of assets not linked to the rise of fall of risky asets

Stamp Duty "Holiday"

Alistair Darling announced a Stamp Duty Payment Holiday.

The threshold for Stamp Duty has been temporarily raised to £175 000. The idea is to get the housing market going again.

Will it work?

In the early 1990s, thne Chancellor Norman Lamont tried it. He was asked his opinions this time round. He mentioned that it had not worked then & he did not expect it to work now.

It will have no effect in London & the South East where the average property for a first time buyer costs £241,985.

Pensions advisers & advice...Swindon & beyond

In the old days when you wanted advice on your company pension, there was somebody you could call up or even meet to discuss contributions, investment choice & other matters.

However with cost cutting many firms outsource their pension services & employees do not have anybody to talk to.

Where can you get pensions advice?

You an contact an Independent Financial Adviser. We deal with pension everyday especially for self-employed people or those who had company pensions transferred into Personal Pensions.

The same principles apply whether you have a company, stakeholder, personal or self invested Personal Pension (SIPP).

You are looking to minimize charges and choose the right investments suited to your age and attitude to risk.

4.99% Mortgage Yorkshire Building Society...beware!

Mortgage providers are well versed in the art of getting their products to the top of best buy tables.

There is a horrific example currently from Yorkshire Building Society. It has a fixed rate of 4.99% for 2 years.

Sounds good? The reality is somewhat different

It has an arrangement fee of 3%, on a remortgage of £200 000, this is £6000!. You can also add this fee to the mortgage & pay interest on it.

You also pay a non refundable fee of 0.25% on application, £500 on the £200 000 remortgage example.

Conclusion

Avoid, truly shocking & rather misleading product.

Stamp Duty

This week the Chancellor announced some plans to possibly defer Stamp Duty to restart the housing market.

What is Stamp Duty?

It covers the registration of many types of official financial & legal transactions. The enforcement of it in the UK's American colonies was one of the triggers towards independence.

However the one you will be familiar with is when buying a house.

The rates are

over £125,000 to £250,000: 1%
over £250,000 to £500,000: 3%
over £500,000: 4%

Credit Crunch: 1 year old

It’s now 1 year since the term “the credit crunch” entered public circulation. The first signs can be dated back to February 2007 when HSBC issued a profits warning.

UK Banks made some pretty horrendous decisions taking on bad debt from the US. Unfortunately these mistakes have been passed onto customers higher mortgage & loan interest rates.

This week banking heavy weights HSBC, the Royal Bank of Scotland & Barclays issue trading updates this week. The results will be interesting. As mentioned last week the only people to lose their jobs are some Directors at Northern Rock.

What will happen next?

The Mortgage market will continue to be complicated, so it is worth getting proper independent advice before making a decision.
Banks will probably merge, we have already seen Santander (Abbey) swallow up Alliance & Leicester. Some smaller banks such as Bradford & Bingley and even some building societies could follow suite.

Negative Equity: BBC Radio Swindon

Below is a transcript of my feature with Claire Bailey on the BBC Radio Swindon Breakfast Show 1 August.

What is negative equity?

Your house is worth less than the mortgage you got to buy it.

When does it occur?

When house prices fall. The Telegraph said yesterday 1.7m home owners or 1/7 of the total were already affected ! There has been a 9% fall from last year’s peak (Halifax house price figures). A Standard & Poor’s survey predicts the market could fall by up to 26.8%.

Who is the worst hit by negative equity?

1 People who bought houses at the peak of the market last year and especially those who took out 100+% mortgages such as the infamous Northern Rock Together product. It allowed people to get houses when they didn’t earn enough.

2 Those in averagely priced homes…the top & cheap ends of the market haven’t been affected.

3 People who dabbled in Buy to let property..again bought at the top of the market

Does it happen often?

The last time was in the early 1990s.

Why have house prices fallen?

House price inflation was around 10% for most of the last decade. This is ultimately unsustainable. The people who drive the market..first time buyers can’t afford to buy.

Plus the impact of the most used financial term of the last year…the credit crunch.

First time buyers can’t get mortgages because banks aren’t lending money….certainly not 100+% mortgages.

What should you do?

Wait, sit tight. House prices will fall until the bottom is reached. At that point first time buyers will be able to afford properties.

The mortgage market will recover too…

John Templeton: Investment Wisdom

Investing legend John Templeton recently passed away at the beginning of July. In 2007 Time magazine made him one of their 100 Most Influential People.

During his long life, he made one very pertinent remark on investing.

“When people are desperately trying to sell, help them and buy. When people are enthusiastically trying to buy, help them & sell”

Thanks to Lawrence Gosling of Investment Week for the quote.

Banking chiefs should be sacked says fund manager

Fund manager James Foster of Artemis says heads of failing banks such as Fred Godwin of Royal Bank of Scotland & Andy Hornby of Halifax Bank of Scotland, "should be shown the door".

He continues, "they had forgotten the basic tenets of banking".

He was referring to their current problems, the way in which these had arisen & how the management of the banks are tackling them.

From Professional Adviser p5 24 July 2008

Northern Rock re-emerge

For the first time in many months, I have received marketing material for Northern Rock mortgages.

They are the most financially secure company to buy a mortgage or a savings product from at the moment because of government backing.

How do the mortgages compare?

The rates are fine but they still maintain a traditional feature of Northern Rock products...high arrangement fees.

Who is Warren Buffet?

Warren Buffet is probably the most famous investor in the world and may or may not be the richest man in the world.

He lives & works not in New York, Tokyo or London but Omaha, Nebraska

His investment style is basically buy good quality, profitable companies (Coca Cola, Gillette, Wal Mart) at low prices during market turbulence.

It sounds very simple like going to the supermarket and stocking up when your favourite beer or brand of beans is on discount....but it requires a lot of discipline, nerve and a long term view.

Currently markets have dipped in the last year and will continue to be low for the foreseeable future, people are scared to invest. Markets will recover the question is when. However by the time the amateur investor hears about an upturn it will be too late.

Equity Release: What is it?

Equity Release is a way of people over 55 to release money from their property to give them more money in retirement.

There are 2 main types

1. Lifetime mortgages
   
2. Home Reversion

It is heavily regulated these days and has a trade body (SHIP)

Equity release is available through specially qualified Financial Advisers. My company AP Financial Services & I have the necessary permissions.

Bank of England "gives" banks £50 billion.

Yesterday the Bank of England announced it would give UK banks £50 billion in exchange for mortgage backed securities.

It was a move designed to put more money into the financial markets.

However it is somewhat of a u-turn for the Bank of England & its governor Mervyn King who denied it would not do anything liek this a few moths ago. The bank has basically bought assets that nobody else wanted on the financial markets.

It should be noted that the big 5 banks made profits of £30 billion in the last year despite making some rather large mistakes.

Bank of England lowers Interest Rates

The Bank of England yesterday lowered interest rates to 5%.

Will this mean lower mortgage interest rates?

Hmmm...it depends

1 Lenders had priced in the likely decrease into new tracker/discounted mortgages. it's like when supermarkets put up drink prices in November to claim a massive drop just before Christmas
2 Some organisations are not passing on the full 0.25% drop, with Nationwide you may only get a 0.12% drop.
3 Other banks are "reviewing rates within the next 2 weeks"

100% Mortgages Withdrawn

Abbey became the final large lender to withdraw 100% mortgages this week.

Prior to the credit crunch, borrowers were able to borrow up to 125% of the property value. Like other riskier types of borrowings such as sub-prime mortgages, product providers have removed these loans from their books.

it will casuse probelems for 2 types of lenders

1 First time buyers who don't have a deposit.
2 Buyers who took out 100% mortgages in the good times and now won't be able to get a new remortgage deal especially those on interst only mortgages. Their mortgages are likely to increase considerably.

What happened at Bear Stearns?

Bear Stearns was the 5th largest US Investment Bank. It encountered difficulties and had to be bailed out by the US Federal reserve the equivalent to the Bank of England) and is the subject of merger at a ridiculously cheap price by rival JP Morgan.

How did all this occur?

The company had exposure to bad (sub-rime) mortgages in America. The mortgages were sold on using quite complicated financial products. Rumours began circulating that it also had problems with its prime (normal) mortgage investments.

With the rumours & a lack of action to deny them, investors began withdrawing money from Bear Stearns giving it sever cash flow problems and a spiralling crisis.

What is an Investment Bank?

Investment Banks have been widely discussed recently. Bear Stearns is one, as is Lehman Brothers. It begs the question, "what is an investment bank?"

Investment Banks don't offer services to normal retail customers like you or me nor do they have branches on the high street.

Basically they operate in 2 ways,

1. Helping companies and governments raise money by issuing and selling shares in the organisation or debt such as corporate bonds.
2. They also provide advice on mergers between companies & acquisitions

What are Sovereign Wealth Funds?

There are lots of stories circulating about Sovereign Wealth Funds. So what are they?

They are government funds from counties like the oil rich Arab countries & emerging markets like Singapore & China. The Chinese one is worth $1.46 trillion! ($1 460,000,000,000 ) The money is generated by the export of natural resources such as oil and gas in the case of the Gulf States and Russia and manufactured goods in the case of China. The Sovereign Wealth funds are buying assets to safeguard the financial future of their home countries these might include shares in large companies, government stocks or commercial property. One example in the news recently is Dubai International Capital owns budget hotel chain Travel Lodge and has been interested in acquiring Liverpool Football Club.

The funds have become increasingly important in Western financial markets, bailing out US banks hit by the credit crunch. British Banks such as Royal Bank of Scotland & Barclays have seen investment from Qatar and Singapore respectively.

An interesting issue is that will the funds demand a greater say in the running of companies perhaps based on political reason? Some of the US banks bailed out by Arab money have issued special share classes to accommodate the new money without the usual voting rights.

Revenue buys stolen information about tax haven

It has come to light, that the tax authorities (HMRC) have paid £100 000 for information about bank accounts in Liechtenstein. They aim to potentially get back £100 million in tax avoidance from UK residents who have stashed money there to avoid UK tax. They bought the disk with stolen data from a disgruntled former employee of the Liechtenstein Global Trust (LGT).

The German tax authorities previously had paid 5 million Euros for information about German tax payers. Tax inspectors there are going through the finances of 900 people based on the information they received.

Lichtenstein is a major financial centre with 75 000 registered companies but only 35 000 residents. The LGT offers “wealth management to individuals and companies with the promise of absolute confidentiality.”

HMRC have the power to pay informants for information and have been investigating offshore investment in tax havens like the Isle of Man & the Channel Islands. Whether the payments for the stolen data is legal will be a big question. Finally as Mickey Clarke of the Evening Standard noted, “hopefully they won’t lose the valuable disc!”

Spot the Dogs: Poor Investment Funds

Every year Bestinvest name & shame the worst performing (dog) investment funds ; those underperforming the benchmark in each of the last three years and down on the benchmark by 10% over the same period.

Scottish Widows were quoted as ‘gone to the dogs’, with over half the group’s funds underperforming.

The worst culprits in different categories were

• UK – £13m Marlborough UK Equity Growth, down 37%
• European – £355m Melchior European Opportunities, down 37%
• International – £60m UBS Global Optimal, down 14%
• North America – £9m Invesco Perpetual US Aggressive, down 27%
• Tech – £37m Jupiter Global Technology, down 11%
• Japan – £66m M&G Japan Smaller Companies, down 28%
• Emerging Markets – £59m Lloyd George Emerging Markets, down 19%
• Asia Pacific – £232m Invesco Perpetual Hong Kong & China, down 25%

Invesco Perpetual have star manager Neil Woodford but as you can see are home to 2 dogs.

Share picking, potentially dangerous for your wealth.

One area the Sunday newspapers love is share picking, it is also beloved of sites like the Motley Fool.

The problems include:

• Newspaper journalists are not investment professionals. There is no comeback on their “advice”
• They don’t consider attitude to risk or things like the need for emergency funds.
• Do you have the investment knowledge? Is the share a cheap because they company is a basket case or merely unfashionable? Can you predict Northern Rock style crises?

The solution

Invest in a good mutual fund, you eliminate a lot of the risk. A professional manager looks after your money and can taken action on your behalf in the event of a Northern Rock style crisis or take advantage of low market prices

Which ones? Speak to your financial adviser, discuss your needs, risk and how much you can realistically invest.

Northern Rock Nationalised

After 5 months, the government has finally taken action over Northern Rock. It will be nationalised after £51 billion has already committed to the ailing bank in loans & guarantees to savers.

Nationalisation become inevitable after the one potential bidder after another was rejected.

When the crisis arose, there were a number of alternatives

1 Let the bank go bust.

2 Let a high street bank like Lloyds TSB take over the bank, who were initially interested.

Probably the worst aspect of the crisis was the Chancellor being indecisive for so long & seemingly hoping the problem would go away, the delays have severely damaged the Northern Rock brand.

There is one glimmer of hope, the man put in charge Ron Sandler has a good record of previously running Lloyds & Nat West.

Norwich Union...windfall....generous?

Norwich Union have not been slow in trumpeting a £3 billion distribution of money to With Profits policy holders.

Is it a good deal for the consumer?

They actually have over £5 billion left over from fund re-organisation. This is actually customers' money. They are being coy why they can't distribute the other £2 billion ot customers

90% of the money distributed is going to policy holders with 10% going to Norwich Union shareholders. They originally wanted to give a lower figure to clients but then the government's Policyholder Advocate put pressure on them.

In context, a lot of these policies are held in underperforming endowment policies for which Norwich Union have had to pay compensation for misselling.

A final note, they aren't paying out the customers' money to customers straight away. They are doing it over a 3 year period!

New Star: fallen Star?

New Star are one of well known fund providers, they advertise heavily in the money sections of the broadsheet newspapers always launching a "new, exciting opportunity". They have a distinctive psychedelic multi-coloured logo, which apparently looks that way because the printers forgot to add any black to the printing proof.

They were founded by George Duffield, who previously built up Jupiter. He has been extremely generous in sharing his wealth by giving share options to his employees.

However things have started to come unstuck int he last year as Financial advisers have moved money out of under-performing New Star funds.

When the company was established in the early noughties, they brought in many highly paid star fund managers and continue to launch new Funds.

The perception now withing the industry is that they have concentrated too much on trying to grow rather than doing the basics of investing existing investor's money wisely. Some of the funds also have a novelty feel about them.

That said, they still have some very funds. Which ones? speak to your adviser ;).

Food & Fuel Inflation

For the last 50 years, the price of food has come down due to intensive modern farming techniques.
Why then has the price of bread increased quite significantly over the last year?

Production of wheat worldwide hasn't increased much recently, what has increased is demand from India & China with a combined population of 2 billion. This has caused much of the food inflation we have seen recently.

It's a similar story with oil & gas, there is greater demand from newly industrialising countries with production remaining level as market makers put up prices as compettion is greater.

Interest Rates fall 0.25% to 5.25%

As widely predicted the Bank of England reduced interest rates by a quarter of a percent to 5.25%.

It is a bid to stimulate the economy by putting more money in people's pockets. Is this a good thing? Not if it encourages people to borrow more money, as that it partly why economic problems possibly loom.

Interestingly the reason why the Bank of England put up rates several times last year before last summer's "credit crunch" was because of fears of inflation caused by borrowing. Fuel & food inflation is still around....

Rogue Trader: Jerome Kerviel at Societe Generale

You will have read about Jerome Kervie. His deals lost French bank Societe Generale £3.71 billion, it seems he was able to counteract risk management measures due to his previous job in administration.

What made the problem worse for Societe Generale, was they sold the bad deals this week when the markets were headed downwards.

The Chief Executive has offered to resign.

How can we avoid a recession?

Interesting question posed on Radio 5 Live's "Wake up to Money" programme.

How can we personally do to avoid a recession?

1 Pay off your debts
2 Spend money to help the economy? Not if it's on a credit card!