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Even when it’s difficult to predict what will happen next in the financial world, at least Warren Buffett, the worlds’ richest man, has some advice - 10-November-2008

Don't Panic! - 29-September-2008
An update on the current financial situation

Calls for competency framework for generic financial advice - 17-Apr-2007
Following the publication of proposals advocating the introduction of unregulated generic finincial advice, the Chartered Insurance Institute (CII) has called for the establishment of a framework for the evaluation and supervision of advisers.

Even when it’s difficult to predict what will happen next in the financial world, at least Warren Buffett, the worlds’ richest man, has some advice.

10-November-2008

At a time such as the present, when we are suffering greater investment volatility than many people can remember, it pays to be objective. Let’s start with our summary of the current situation, then we’ll quote from someone who has successfully invested money over many years, Warren Buffett.

• Hopefully, we are now at the beginning of the end, but markets will remain prone to volatility, as the duration of the credit crunch remains uncertain. The recent concerted action has been well received.

• The UK is facing a recession, manifested by a housing and retail slowdown. As time has gone on, more evidence of this slowdown has arrived and we have really only moved on from a likely solution to the banking crisis to the next question – How deep will the recession be?

• Inflation is ceasing to be a worry and the central banks are being encouraged to cut interest rates. However, inflation could return in 3-5 years time as a result of the actions being taken now to solve the current crisis.

• Dividend yield on the FTSE All-Share is now higher than the 10yrs gilt yield for the first time since March 2003, when it heralded a 4 yrs bull market. This is probably only an academic point this time; in 2003 the economic outlook was sound, now there is a lot to sort out.

• They say that the darkest hour is just before dawn and the equity markets will recover before the economic data gets better, so it will pay not to be out of the market.

This is a brief summary of how we see the investment world at the moment. Just like everyone else, we don’t pretend that we have an answer for the current financial crisis, but we do have a few views on the situation as shown in the points above. Clearly, we are going to have to face a period of recession and it is to be hoped that this won’t drag on for too long. A short sharp shock would almost be welcome, but this downturn has been complicated by so many factors that it would be foolish to try to make clever predictions – we might have to batten down the hatches for a long time yet.

Warren Buffett has recently been quoted as saying “Be fearful when there is greed and be greedy when there is fear”. In other words, the time to invest is when everyone else is selling, that is how value can be found. He goes on to say that fear is now widespread and even though he doesn’t know if the market will be higher or lower in a month, or even a year, from now, it is likely that equities will move ahead before the economy picks up.

The points made at the beginning of this article indicate the fear and uncertainty that exists, but the point that is made by Warren Buffett potentially shows a way to take advantage of the current situation. At a time such as this, it is important to review your circumstances and needs relative to your attitude to investment risk. Russell Ulyatt offers fee-based, impartial advice from a professional firm that you can trust.

This is an investment commentary which should be viewed as providing general information rather than investment advice. The value of investments can go down as well as up and levels of income taken from investment funds may fluctuate and in certain circumstances might reduce the value of the underlying capital.

Don't Panic - An update on the current financial situation

29-September-2008

The problems that are being experienced in financial markets have not been caused by the wider economy, but there is a real danger that they will have serious effects on it. At least, there will be a worldwide slowdown in the economy and maybe a recession.

This has come about due to the long period of globalisation when cheaper manufacturing from China and the emerging markets kept inflation down and so interest rates also remained low. A credit and mortgage boom followed, which was further complicated by derivative trading and securitisation which has escalated the problems now that a number of bad debts have arisen. This process became known as “leverage” – it used to be called borrowing.

Problems built up as the banks themselves became wary of lending to each other as they did not know how much debt each of them was carrying, thus pushing up the interbank lending rates and so, in turn, making mortgages unaffordable. In the UK, the Northern Rock, who depended on finance from the marketplace, became the first UK bank to fall into difficulty. Equities became affected too because hedge funds, who borrow to finance their various different investments, could not get the credit they needed and so became forced sellers of shares.

Financial markets are finely balanced and inter-dependent on each other. Confidence is vital and as credit dried up, the investment dominoes began to fall. We have now seen a major investment bank in the US become bankrupt and the US government has taken action to save two others. In the UK, Lloyds TSB has been actively encouraged to take over HBOS.

Now another bank, Bradford and Bingley, has encountered problems in raising mortgage funds from the market and this has been further exacerbated by this particular bank’s activities in the buy to let market. The government has swiftly taken steps to guarantee funds for borrowers and had the Spanish bank Banco Santander waiting in the wings to take over the Bradford and Bingley’s investment accounts. On the same day that these measures were announced, the Belgian bank Fortis has also encountered similar difficulties.

It is worth reminding investors that their savings of up to £35,000 are fully protected, but anyone who has more than that on deposit with one institution should consider spreading their investment.

Will this be the final problem? It would be a brave person who expressed a view at this volatile stage. Indeed, as this is written, the markets are considering the implications of the US Congress having rejected the $700 billion rescue plan. These conditions are in many ways breaking new ground and there are many uncertainties, not least - how long will all this last?

If this is a normal investment cycle, then inflation should continue to ease, interest rates would fall and the bear market should draw to its natural close.

For this to happen, we need to have seen the end of the problems in the credit markets. The American housing market is still seen to be the key to this issue. As time goes on, hopefully confidence will return and we will enjoy a virtuous cycle.

Fund managers are finding that the current volatility is creating opportunities for long term investors. It is a great shame that retail investors so often wait for markets to rise before they invest, then panic and sell at the bottom. This is the opposite of what is required to profit from your investments. Nerve and patience are required to make long term gains from investments.

Summary

• The bear market is likely to continue until interest rates fall, or it can clearly be seen that they are going to fall.

• The UK is facing a recession, manifested by a housing and retail slowdown.

• It remains to be seen whether we have experienced the final shake-out, or whether the knock-on effects of the credit crunch will continue and cause further problems.

• Markets will remain prone to volatility as the duration of the credit crunch remains uncertain.

• Inflation is ceasing to be a worry and the central banks are being encouraged to cut interest rates

• Dividend yield on the FTSE All-Share is now higher than the 10yrs gilt yield for the first time since March 2003, when it heralded a 4 yrs bull market.

Now is the time to remember Corporal Jones advice – Don’t panic……… but do contact Russell Ulyatt if you wish to discuss your own portfolio in more detail.

At a time such as this, it is important to review your circumstances and needs relative to your attitude to investment risk. Russell Ulyatt offers fee-based, impartial advice from a professional firm that you can trust.

Give us a call on 0115 9075100 if you wish to review your investments.

Please note:

This is an investment commentary which should be viewed as providing general information rather than investment advice.

Any figures mentioned in this article should only be considered to be a current guideline.

Any opinions expressed are intended to be a consensus view from a wide range of investment information as at 29 September 2008.

The value of investments can go down as well as up and levels of income taken from investment funds may fluctuate and in certain circumstances might reduce the value of the underlying capital.

Calls for competency framework for generic financial advice

17-Apr-2007

Following the publication of proposals advocating the introduction of unregulated generic financial advice, the Chartered Insurance Institute (CII) has called for the establishment of a framework for the evaluation and supervision of advisers.

The CII claims that the setting up of such a framework is essential to instil public confidence in the system, while the institute also calls for wide-scale face-to-face availability of generic advice in addition to telephone and e-based offerings.

Dr Alexander Scott, director general of the CII, commented that the institute welcomed the notion of unregulated personalised generic financial advice, noting an "advice gap" for middle-income earners in this regard.

"It is clear that replicating existing training and competence models is not the answer," he said.

"These ideas offer a framework for developing innovative low-cost tools to deliver competent generic financial advice," he added.

Earlier this month, the Resolution Foundation called for a debate regarding the funding of generic financial advice, with the research and policy organisation backing joint government and industry financing of the scheme.