Financial Markets Review 2008 and Forecasts For 2009
Stock-Markets / Investing 2009 Dec 23, 2008 - 09:15 AM GMTBy: Armstrong_Davis
What a year! Where are we?
Financial advice - Everyone’s saying ‘thank goodness that year’s over! Phew! That was terrible’. Of course, they’re also saying ‘No-one could possibly have predicted the downturn, the housing crash, the stock market collapse etc’.
I was advised by a marketing expert this week that I shouldn’t trash the ‘competition’. (Of course other firms are not directly competitors, however stockbrokers and financial advisers are giving investment ‘advice’ – or as I prefer to call it ‘sadvice’!)
Well normally I wouldn’t (trash them) however when they score SO MANY own goals WITH OTHERS’ MONEY I can’t keep quiet. I actually want readers to see what is wrong with the traditional model of financial ‘sadvice’ in this country.
Investors trust banks, IFAs and insurance companies like St James Place Capital with their financial well-being. And what do the recipients of this trust do time after time? They mess up families’ financial positions. They encouraged Buy-To-Let at the peak in 2005-2007, after over a decade of rises in house prices; they recommended stocks at the peak in 2007, after the 2nd longest bull-market in history (October 2002 to October 2007); similarly for commercial property funds and corporate bond funds. (Not counting Tech stocks and funds in 1998 and 1999…)
You see, the standard broker/’adviser’ takes the path of least resistance. In other words, they show a chart of past performance which, naturally, has risen from year dot. Then they ‘advise’ or recommend this as the best investment since Microsoft in the early 1990s.
Once again, dear reader, we would remind you of a Sir Alan Sugarism which we, at Armstrong Davis, have championed because it’s what we aim for our clients: ‘Buy Low, Sell High’.
Yet most brokers and ‘advisers’ effectively recommend to Buy High and Sell Low. Hmmm…
It is the same advice if you are an individual with £300,000 in savings, a family worth tens of millions or an institution with hundreds of millions.
What did we advise?
Allow me to remind you that
We largely took people out of stocks in 2006 to 2007 (the FTSE went back to 2003 levels in October 2008).
We took clients out of excess property since 2006 and we advised against further exposure since 2005 (house prices in the UK are already back to 2005 levels according to the Halifax).
We have steered clear of commercial property funds for years. Most funds are still applying the small-print clause of requiring investors to wait up to 12 months before they can access THEIR own money.
We have been increasing exposure to commodity funds for the last couple of years. We cannot yet entirely prove this to have been correct however, given the parlous state of GBP (Gordon Brown’s Pesos…) and the USD (having restarted its multi-year collapse) we are very confident of this course of action for the years ahead.
And the results?
Our heaviest losing portfolio is down around 10% this year from January 1, including all costs. Most of our portfolios are neutral
…in the year of the most vicious attack on wealth in at least a decade.
How does that compare to other portfolios entrusted to other wealth managers?
The heaviest losing investor portfolios in the UK are down around 50%. (Some are have lost everything…) Most - whether personal, family, corporate or institutional - are down around 25%.
(No doubt the old mantra will come out –
‘The market’s down 40% but we’ve only lost you 25%. Haven’t we done well?’)
Also, those who stayed in cash – thinking this to be risk-free – have seen their interest income fall by around 2/3rds as Bank of England rates have been slashed. Hardly risk-free.
What now?
On 13 October – when all around was doom and gloom – we said the stock market was likely to rally from there. In fact, from a low of c 3700 (FTSE 100) it currently stands at
c 4200 – a rise of c 16% in around 2 months. We are still confident of a further rise into the New Year taking the market up around 30-50% from the lows.
(Please note: we are not saying the market is out of the woods. Far from it. However we did and do see this bear market rally. We do, also, expect to read many reports in the year-end press that all is now well and the bear market is over.)
We said in 2007 that the bear market, when it arrived, would be brutal – following, as it does, the 2nd longest bull market in history.
Investors who are rightly concerned for Sterling should invest in commodities, longer term. Our expectation of a continued long-term rise in commodities will secure against the longer term devaluation of our currency and help you retain your wealth in purchasing power terms. That is what we call preservation of capital which is uppermost in our minds at all times (especially these times.)
The real economy
The economy is a tragedy:
Unemployment is rising faster than for decades
Home repossessions are exploding
Corporate bankruptcies will soar next year (above what we have seen this year, most recently the big names Woolworths and MFI)
Personal bankruptcies will soar
So, to combat the tragedy Brown and Darling cut VAT. A bottle of Claret goes to the best response of anyone who can tell me how exactly that will help. Funny responses can also win.
As Churchill said ‘This is not the end…but… the end of the beginning.’
They’re also borrowing on our behalf and bailing out failed industries. (Does it remind anyone of the 1970s? Or is it just me?)
After the next election (what a co-incidence!) our taxes will soar to pay the government debts and they will remain high for years. The economy is now in recession and I fear it will stay so during the whole of next year and it will be weak for years. No ‘V’-shaped recovery as our political leaders would have us believe.
Currently, we have falling prices due to primarily the state of the economy and due to
a) The high street having stocked too much for Christmas and
b) The price of oil on the world market diving off a high board during this autumn
c) Also, of course, still rapidly falling house prices to, in our view, 2011/12. Currently, we forecast that prices, on average, will fall 40-50% to the trough from the August 2007 high. Surveys (e.g. Halifax and Nationwide) show prices are down around 15-20%. They are out of date. Transaction prices are down, thus far, at least 25-30% from private discussions with senior property professionals and this will reveal itself in those surveys next year
d) Rents have also fallen around 20% over the last year or so due to the oversupply of properties available for rent.
We expect to see rising inflation again from 2010/11 due to
a) A weak currency requiring higher payments for our imports e.g. food, fuel etc i.e. commodities
b) A global economy which will come out of recession before we do thus raising the price of commodities globally, and further for us
c) Fewer competitors across industries and those remaining will increase prices to rebuild their profits
d) The Bank of England keeping interest rates lower than inflation for longer than they should, in order to restart the economy. Laudable short term however deeply flawed for our economy in the long run.
Talking of the 1970s, we expect to see 1970s style inflation by the middle of the next decade. This could well lead to industrial strife as we experienced then, as well as continued falling standards of living. Thus, the problems extend to years from now.
The politicians, bankers, central bankers and others have effectively bankrupted the United Kingdom.
Clients of Armstrong Davis need have NO fear or concern about how this affects them. Their bespoke arrangements are sound and will continue to combat effectively the great problems we have and those still to come.
We invite clients to refer friends and family to us so that we may review their arrangements for the coming onslaught.
We invite solicitors and accountants to refer clients to us, similarly.
We invite enquiries directly.
Investors must secure their capital and ensure it retains purchasing power
At Armstrong Davis we are serious about preserving capital, first and foremost.
We merge our expertise of markets and macroeconomics with financial planning tools to provide excellent financial advice to high net worth families and business people and trustees.
Please remember, investments can fall as well as rise – and they will.
All the very best from the team at Armstrong Davis Ltd for the festive season and for 2009.
As ever, if you have any queries – and I‘m sure you have many – please do not hesitate to contact me.
With kind regards
Jonathan Davis BA MBA FCII AIFP FPFS ,
Chartered Financial Planner
Managing Director
Please remember investments can fall as well as rise. And they will! - Armstrong Davis Ltd accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.
© 2008 Copyright Jonathan Davis - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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