The Sunday Times - Money Comment 09/08/09

Posted by Jill Kerby on August 09 2009 @ 20:49


I’m increasingly concerned about the number of people I’m meeting these days who are being taken in by the stock market rally of the last six months. Or, rather, by press reports of the rally.  Do we never learn?


As this rally has shown, last March was the lowest point for nearly all global stock markets and the traders and speculators who got in early and picked up battered financial, construction related shares and oil and other commodities have made big profits.   

Amateur investors need to see the rally in full flight before they feel confident enough to get – and angry enough with themselves for not acting sooner – before they plunge into the market. Usually that’s when it’s too late and the traders, who see the plebs hammering at the door, start moving towards the exit, pocketing their profits. 


I have no idea if the markets are going to keep rising or not.  No one does.  But I do know that the kind of buying we’ve seen, especially of financial, construction-related and some retail shares – makes absolutely no sense given how the banking sector is still a basket-case and lending has effectively ground to a halt. Unemployment is also still rising; house prices are still falling and repossessions are soaring. Commercial property is going into melt-down and government deficits and national debts are ballooning. Consumers have stopped spending. 


This looks like a recipe for lower, not higher corporate earnings, share prices and dividends. 


The mistake I made was not heeding my own advice in May of 2008:  I didn’t sell and go away, but that was because the bulk of my savings is tied up in long term pension funds. Last year, it never dawned on me until it was too late that the financial and credit crisis could have such a devastating effect on my 20 years worth of carefully diversified pension assets.  I genuinely thought I’d been clever by-passing Irish shares or getting weighed down in financial stocks. 


Since I think this Great Recession is still in its early stages and there’s a lot more downside risk than ‘green shoots recovery’, I’m checking out low-cost, index-linked bond funds and big defensive stocks that still pay dividends and are, I can only hope, unlikely to disappear altogether between now and when I can afford to retire. 


And while pension tax relief is still with us, I suggest you get moving on making your 2009 pension contributions as soon as possible:  one bet I am taking is that retirement funding is going to get a lot more expensive after the Commission on Taxation’s report is published in September.  


And I wouldn’t put it past this government to not just cut the level of tax relief on both contributions and the matured fund, but to implement those changes before the October 31st pension deadline. 



Savings rates are up everywhere – at least among people who still have a job - and no more so than here where the fear of unemployment, falling house prices, rising taxes and fewer public services – has raised the national savings rate to a reported 12%. 


That may not last.  The latest Postbank quarterly savings index throws up an interesting statistic: nearly half (45%) of those surveyedbelieve they will have to dip into their savings within the next few months as their incomes come under more pressure.  With the retail banks now reducing their deposit rates and at least half of all credit unions failing to pay any dividend this year, there certainly isn’t much financial incentive to keep saving at these levels even if the reasons for doing so – like retirement and children’s education - increase. 


Meanwhile, Bank of Ireland suggeststhat the cost of educating a child from primary to college level is now €70,000 – and that doesn’t include paying any private secondary or third level fees.  


The bank notes in a report they compiled with the parent’s website, www.Schooldays.ie that you might just about cover the cost of educating one child up to secondary level if you saved all your child benefit payments, plus another €150 a month but only if their education investment plan, “which is not guaranteed” returns a steady, net 6% per annum. 


Who comes up with this stuff?  


This useless plan charges a 5% bid offer spread, a 1.5% annual management fee and a 28% exit tax. Avoid at all costs. 




It’s weirdly heartening to find out that we are not the only eejits in the world who deliberately set out to fleece both visitors and locals for all sorts of goods and services. 


According to Visa’s Europe Suitcase Index, which prices a basket of popular holiday items around the world, the Bulgarians are even worse than we are for ripping off holidaymakers. Singled out in five of nine categories, why else would they charge a whopping €28 for a pair of designer flip-flops, €30 for a beach towel or even €5.35 for a can of deodorant?  


Mind you, the last place you want to be without your iPod 8GB Nanoor a Kodak C1013 camera this summer is the Caribbean:  compared to the €139.99 and €99 respectively that they will cost here (they’re even cheaper in the US and Czech Republic), expect to fork out a whopping €490 and €477 to the pirates that are clearly still running those sun-blessed islands. 


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