Mother of all bear rallies

Here is an interesting take on current events. I must admit to some sympathy with the writer as I can identify with signs that managers are starting to find value in certain markets.

"Earlier in the week we read that Barton Biggs, the former market strategist for Morgan Stanley for 30 years, is warning the ‘mother of all bear market rallies’ is going to happen imminently. So far his timing has been spot on with the Dow Jones Industrial Average Index rising 16% since the intra-day lows last Friday.

Some market professionals I’ve spoken to agree with this view and are looking for a move 30% higher from the recent lows to the end of December. If we equate that with the recent lows on the FTSE, we could be looking at somewhere between 4,800 and 5,000 points, about 675 points higher than Thursday’s close."

Only time will tell but for those investors keen to catch markets at or near the bottom now might just be the time to start considering suitable investments that meet individual risk profiles and investment outlooks.

We have a number of such opportunities on the table and would be pleased to discuss them with any interested parties.

JPM Natural Resources

A few investors might be interested in reading the most recent fund managers update in resepct of the JPM Natural Resources Fund.

One of the most popular funds in recent years it has hit hard times of late but the medium to long term outlook looks brighter.

Click here to read more.........

http://www.jpmorganassetmanagement.co.uk/vgn-ext-templating/jpmf-extensions/StaticFiles/English/Webcasts/JPM%20-%20Natural%20Resources%20Fund%20Summary%20[11%20Nov].pdf

Beware Cold Callers !

Cold called and offered a red hot share tip? Be very aware, it could turn out a lot hotter than expected. So hot, in fact, that the shares (and your money) vaporise in the intense heat of this boiler room trading scam.

You may be disenchanted with current investment opportunities and performance in these credit-straitened times, but don't let your enthusiasm to reassess and realign your investment portfolio turn you into the perfect prey for a smooth-talking, ever so convincing salesperson.

Yes, we are in a bear market and an exciting share offer will always have a 'grass looks greener' feel to it. Yet that grass will not only be just as tough to mow, it could also dry up and become your very own financial dustbowl. Boiler rooms are high pressure sales firms, unauthorised and often based offshore, that specialise in worthless investments. They target investors illegally, offering overpriced, non-tradable and often non-existent shares. Collectively UK investors donate upwards of £500 million to such hucksters each year. The average individual loss is around £20,000, although the Financial Services Authority (FSA) has reported a case where the investor lost £500,000 and it believes many others are too embarrassed to admit being swindled by boiler room activity.

Not that it would do them any good. Because such sales outfits are unauthorised, the Financial Services Compensation Scheme cannot offer redress to victims of boiler rooms. Hence the FSA has now teamed up with the main company registrars to warn investors. Together with the Institute of Chartered Secretaries and Administrators (ICSA) Registrars Group, the FSA is urging stockmarket-listed companies to include warning leaflets about boiler room scams in their communications with shareholders.

Shareholder lists are sold and resold by boiler rooms, although from October this will be more difficult to implement; new Companies Act provisions will force buyers of lists in stockmarket companies to state the purpose of their purchase. "This won't stop the old lists circulating but they will become less valuable as time goes on," says Andy Cotter, chair of the ICSA. "No company wants its register used to target unsuspecting shareholders with high-pressure sales pitches."

What you should do: If you pick up the phone and get some smooth patter about the benefits of investing in shares of a company you've never heard of, get the caller's company name and say you will phone back. Ignore protestations about 'time is tight and the offer could be withdrawn.'
Then check the FSA website to see if the company is authorised or whether it is on the black list of some 500 known financial rogues. Report to this City watchdog any firms that cold call you offering to sell shares. The FSA in the past 18 months has taken action against seven firms operating as boiler rooms or working on behalf of such scams. Its recently updated leaflet explains how to identify and what to do about them should they contact you.

The message should be clear: don't buy from a boiler room unless you really do have money to burn.

Inflation, Deflation... Where next

First it was oil, now it’s the goods we buy on the High Street. It’s funny. While all around doom and gloom is the staple diet, the best bit of economic good news we have received for a very long time has barely been noticed. The latest data out from the British Retail Consortium (BRC) revealed that both food and non-food inflation turned negative in October.

The annual figures are still well into positive territory, of course, with the BRC recording the annual rate of food inflation at 7.5 per cent. Non-food annual inflation stands at 0.7 per cent and the combined rate at 3 per cent. But you need to bear in mind, 12 months’ worth of data make up the annual figures and, therefore, it takes a year before changes work their way out of the system.

Annual food price inflation peaked in August, hitting 10 per cent, whereas month on month food inflation peaked in the previous month when prices rose by 1.9 per cent in just the one month. But ever since then, the trend has been down. Food inflation rose by just 0.3 per cent in August and turned negative in September. But October was the first month which saw negative month on month food and non-food inflation for a very long time. Overall, prices were down 0.1 per cent in the month, the first fall this year. But, expect the decline to accelerate. We could be just six months or so away from seeing the annual rate of food and non-food inflation go negative.

That the next year or so is going to be tough, is patently obvious. But for those who can hold on to their jobs, affordability is set to improve significantly. Every penny will stretch a lot further.
Falling food and oil prices will also afford the Bank of England greater leeway in cutting interest rates – of course. By the time you read this, you will probably know how much the Bank of England has chosen to cut interest rates.

The time is now right to cut rates in a big way. The UK’s central bank could easily justify knocking 1.5 percentage points off interest rates. It probably won’t, a half a per cent is far more likely, given the bank’s usual cautious approach. In any case, the full extent of rate cuts won’t be passed on by the banks. But the trend is clear. Interest rates, and in turn the monthly amounts mortgage holders have to fork out for their payments, are all set to fall.

0% Interest Rates !

Zero interest rates are on their way. They could be days off in Japan, weeks off in the US and, maybe, months off in the UK. The decade beginning in the year 2000, and finishing in 2010, may be known as the noughties for more than one reason.

Yesterday, the Fed cut interest rates to 1 per cent. And its chairman, Ben Bernanke dropped a big hint they will be cut again. “Downside risks to growth remain,” said the official Fed statement, and then talked about “levels consistent with price stability.”

Rumours that the Central Bank of Japan is set to cut rates back to zero have been doing the rounds for a couple of days now. In fact, it is these rumours that have lain behind the surge in stock markets around the world over the last couple of days, with the Dow enjoying its second-highest daily rise ever, on Tuesday, and the FTSE 100 its third-best day ever, yesterday.

And what about the UK? Yesterday, Capital Economics said: “Extraordinary circumstances require extraordinary actions. With the current recession likely to be deeper than that in the early 1990s and the credit crunch impairing the effectiveness of monetary policy, we now expect UK interest rates to fall to an all-time low of just 1 per cent.”

Earlier this week, former MPC member and extremely illustrious economist, Charles Goodhart, told Channel 4: “Interest rates will go down from now, by how far and how fast nobody knows… They could go to zero. They went to zero in Japan in the 1990s when the Japanese had a recession or depression which went on for a long time and was quite severe.”

Irish Government Extends Guarantee to I of M.

Further to our previous postings in relation to the security offered by The Irish Government we are pleased to see today's announcement lifting some of the uncertainty floating around just now.

The Irish government has confirmed four banks and two building societies will be protected by its bank guarantee scheme safeguarding offshore savers in the Isle of Man.

Irish Minister for Finance Brian Lenihan signed the order on Friday night after the six lenders agreed to be in the scheme, which will protected 100% of depositors’ savings. The guarantee makes the protected Irish banks more attractive than other Isle of Man deposit takers, who are only covered for the first £50,000 by the Manx Depositors Compensation Scheme. ‘The guarantee has as its central objective the removal of any uncertainty on the part of counterparties and customers and gives absolute comfort to depositors and investors that they have the full protection of the state,’ said Lenihan. The four Irish banks with Isle of Man branches protected by the scheme are:

• Anglo Irish Bank Isle of Man
  Bank of Ireland Offshore
  Irish Permanent International
  Irish Nationwide Isle of Man

Annuity Rates Set To Fall

We have seen annuity rates decouple from bond markets in recent months, as annuity providers have held back from passing on the full extent of rising yields. The benchmark rate for a 65 year old male is currently 7.7 per cent, we think that there is a strong argument for rates dropping well below 7 per cent over the next year.

Along with gilts, corporate bonds form the underlying investments used to pay annuities. With the credit market seizing up, the yields on corporate bonds have spiralled to unprecedented levels and this in turn has allowed insurers to increase annuity rates. Government measures to inject liquidity in to the market and kick start lending again will hopefully bring interest rates down. When the market does start functioning again, bond prices could jump as yields drop back. This is likely to bring downward pressure to bear on the annuity rates.

In addition, we believe that increasing longevity is constantly forcing insurers to lower rates as annuities will have to be paid for longer. Annuities are also undergoing a rapid evolution towards an individual pricing approach where the actual rate is dependent on the investor’s health and lifestyle, as seen by the rise of enhanced and postcode annuities. This drags down rates for the healthy and those living in more affluent neighbourhoods.

In as much as it is possible to be certain about anything at the moment, there appears to be a strong possibility that annuity rates will fall over the next year.

Value in Corporate Bonds ?

BlackRock's head of credit Paul Shuttleworth believes corporate bond default rates are likely to rise despite the UK Government's huge recapitalisation of banks improving sentiment towards the asset class.

However Shuttleworth thinks the current yields on corporate bonds are far too pessimistic and that the asset class is offering good value over the medium term. Shuttleworth said that a proliferation of new bond issues from financial companies was now likely as until recently the prevailing conditions had made the issue of new bonds almost non existent, but the deteriorating economic environment would make further company failures and subsequent defaults more likely. He said: 'Investor sentiment changed for the better once it became clear that the UK Government's bank recapitalisation would leave bank bondholders intact.'

'As the British lead has set a global template it is likely that sentiment will continue to improve but the flies in the ointment are that we will see financial institutions issue more bonds in the future - which they haven't been able to do until recently. With a slowing global economy company failures and subsequent bond defaults may increase.'

Despite this, Shuttleworth believes the corporate bond sector has stabilised since the recapitalisation and that the current default risks are priced in. He said: 'Historically the worst cumulative default rate for 'investment grade' bonds (BBB and above) over any 10 year period since data started being collected in the early 1970s, was 5.2%. The average default rate over any 10 years is actually 2%.'

He added that the yields currently being paid out annually on corporate bonds were pricing in a 50% default rate over the next 10 years for financials, and 30% for non-financials which he sees as hugely pessimistic. 'The pessimism in the pricing of corporate bonds is overdone - over the medium term they offer real value

It has been reported in recent press articles that Norwich Union may abandon plans to pay windfalls to its policyholders after the stock market slide slashed the value of its spare capital. The pay-outs were to be made by NU's parent Aviva from surplus capital that had built up in its with-profits funds over many years. Last year, the insurer approached policyholder advocate Clare Spottiswoode to help decide what to do with the spare cash. Spottiswoode lobbied hard for significant payouts to policyholders and Aviva said in July it would hand out windfalls averaging about £1,000. But the plan could be scrapped after the crash in stock market values hit Aviva's capital assets and eroded the pile of surplus capital.

We will continue to monitor the position and keep clients informed however in the interests of protecting terminal bonuses and in the knolwedge that TB's are already starting to fall due to the prevailing economic climate more immediate action may be necessary in certain circumstances.

Half of UK adults have no pension plan

Nearly half of adults in the UK are failing to contribute anything towards a pension scheme, despite the continued trend of people living longer. New research shows that 46pc of the working population aged over 18 are not setting aside any money for pensions. A similar number (45pc) of people aged between 55 to 64 are also not currently paying towards their retirement funding.

The Society of Pension Consultants, the representative body for the pensions industry, which commissioned the research, said it was "worrying" that virtually half of the working country is failing to save towards retirement, especially as the credit crisis had eaten into the value of homes.