RaboDirect E-Zine - Sept 2008

Posted by Jill Kerby on September 01 2008 @ 21:42



 ‘To my American friends I offer these wise words from your perhaps more frugal neighbours north of the border: Use it up. Wear it out. Make it do. Or do without.’ 

                            - An anonymous Canadian  


We never seem to do anything by halves here.  

Historically, the Irish didn’t just have a couple of tough years.  We had a famine. 

Over the centuries our young people didn’t just seek work in other countries… they emigrated ‘en masse’.  

Even our good times have been noted for their, well, over-exuberance.  Ireland didn’t just take its place amongst the rank of prosperous nations in the last decade; we allegedly became the second richest people in the world, after the Japanese. 

“A ‘correction’ is equal and opposite to the deception that preceded it,” says one of my favourite literary economists, Bill Bonner.  It looks now like our bust will be even ‘buster’ than others, to paraphrase our ex-Taoiseach’s pithy description of the boom years. Our house prices, pension fund values and stock market values could all end up reaching depths that other countries, if they’re lucky, will only read about. 

That said, we’ve already reacted - in character - to the bad economic news by dramatically slashing our high street spending and by saving like mad again.  And despite what you may hear from politicians and bank economists (this bank excepted), who have become so obsessed by the concept of the ‘growth’ economy that they didn’t recognise the property bubble until it was exploding under their noses, saving is actually a very good thing.

No one ever got rich by just borrowing and spending.  

Real wealth, as we discovered in the early days of the Celtic Tiger, is created by the accumulation of capital over time, and the prudent investing over time of that capital in genuine growth opportunities, like software development; the creation and manufacture of new drugs and high tech medical devices; high end finished food and agriculture products and high value tourism.  Selling ugly, overpriced houses to each other just doesn’t achieve this end. 

Where to start?

Aside from cutting up your credit card and vowing to live in an entirely cash economy again, how about starting with a contingency fund, if you don’t already have one.  


As a nation we’ve already increased our volume of savings by a reported €4 billion in the first eight months of 2008; these savings accounts are your first line of defence in any recession and will support the financial rainy days going forward. 


Ideally, you should aim to have between three to six months worth of net salary in your contingency or emergency fund, enough to see you over a period of short-term redundancy, illness or the expensive and unexpected household events that can result, for example, in a plumber having to be called out on a freezing New Year’s Eve, 1997 to replace the central heating pump. (Believe me, that’s an expensive call you won’t forget.) 


Whatever amount you designate for your fund – if you earn €40,000 net, you want to build it up to at least €9,000 in cash – start with a deposit of a few hundred a month (think the SSIA scheme), and consider adding bonus and commission payments as well. You’ll be surprised how quickly your fund builds up.  


If you arrange your salary contribution to be debited directly – and some companies with deduction software programmes will happily do so if you ask nicely, you won’t even notice the shortfall after a short while. 


This cash diversion doesn’t have to last forever – just until you reach your target – but it means living well within your means for a while, at least.  Once the fund is in place, you can either stop the salary transfer altogether or re-route it back into your every day budget.  Or better still, it can pay off the mortgage faster, boost a pension of AVC fund or build up a diversified portfolio of assets and shares. 


These are volatile times, so make haste slowly, but every downturn throws up investment opportunities in strong, well-run companies and sectors, with low debts and high cash flow.  


The bull run in energy, minerals, food, and other essential commodity products (like water, especially) isn’t over yet, say investment gurus like Jim Rogers (George Soros’ old Quantum Fund partner), despite a sharp fall-off in share prices during August.  


The developing economies of China and India could very well slow down if this recession goes global, but giant infrastructure companies don’t just build power stations, roads and bridges and sewage facilities in the developing world.  

The developed world’s infrastructure – that’s us too - is aging and clapped out; western government’s don’t have much choice but to keep the drains running. 




Hurray! for Prudence & Thrift! 


It may still be early days in the downturn but even the most profligate Celtic Tiger cub should know by now that it really does pay to shop around for big ticket items like housing, food and insurance.  

There’s also no time like the present to rediscover the joys of ‘making do’, as my mother used to say.  Give or take another 20 years when Peak Oil really does kick in, the joys of endless out of town shopping malls, global trotting Caesar salads and tasteless, out-of-season strawberries will be nothing more than a distant memory. So why not, beat the rush and… 

- dump the €600 gym membership that was used twice last February and start walking or use a bike.  

- ditto the monthly €9.99 DVD club subscription. Rediscover your local library instead, where they not only lend out books, but DVDs, CDs and computer games. 

-  bring a thermos cup of home-brewed coffee to work every day to replace the watery €3 cappuccino (and save €700 a year).  Not smoking is a financial no-brainer, but making a packed lunch, even a couple of days a week, can easily save you another €500 a year. 

- learn to manicure your own nails, massage your own feet, exfoliate your own face and even wash and blow dry your own hair again.  Ubergrooming is not just wildly overpriced in this country but is downright scary now that young men are doing it too.

- wear all your clothes for another season without buying any more; it’s always the autumn here anyway.

- takea course this winter and learn some essential DIY.  Bring you kids so they can also learn how to fix a leaky tap, replace broken hinges, hang some shelves or service a car. Teach yourself and them how to grow and plant a vegetable garden or some fruit trees and then - and here’s a real throwback - learn how to cook your own food… from scratch. 

Doom and gloom?  We haven’t seen anything yet!

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RaboDirect E-Zine - May 2008

Posted by Jill Kerby on May 01 2008 @ 21:42



If investing was easy, we’d all be doing it, and we’d all be rich. 

Of course, during the height of the property boom, it was easy, and yes, we all got rich - on paper.  We bought houses with cheap credit that “earned” more each year than we sometimes did ourselves.  We actually thought, like ancient alchemists that we could turn bricks and mortar into gold by buying buy-to-let properties and watch their capital value rise. 

There’s a big difference between ‘getting’ rich and ‘staying’ rich however, and investing during any boom is no guarantee of the latter, especially when you’ve been used mainly borrowed the money to ‘get’ there.

Make no mistake, the global property boom, of which ours was ‘boomier’ than most, as a certain ex-Taoiseach once said, was more about cheap credit and reckless lending practices than it was about any notion that property was the ultimate investment asset that would never succumb to the laws of physics. 


Now that the dot.com and property markets have both proved the old axiom that what goes up must come down, are we simply blowing up new balloons by switching our attention to commodities and emerging economies?  They have soared in value in recent years, fallen in recent months are in a volatile up and down stage now.  Have they boomed out, or are they genuine investment opportunities with the potential for solid growth?


Commodities like steel, iron, oil, wheat and corn, etc and emerging markets like Brazil, Russia, India and China (the BRIC countries) the Gulf states and south east Asia are really two peas in the investment pod. 


These countries have things in common that established western economies no longer have:  billions of young, hard-working, thrifty people who are desperately keen to improve their standards of living and trillions of dollars of earned, mainly western, currencies sitting in their national treasuries and personal bank accounts. 


Sounds like a winning combination to me, and one that the Americans in particular had in abundance 100 year ago or so at the beginning of the Great Oil Age.  


Every economic (and mililtary) empire eventually gets tired.  They expand their borders of influence too far; they get lazy and arrogant and greedy; they inflate their money and borrow too much. They believe they can do all the thinking and let others do all the sweating.  The United State is no different than the British, the French, Spanish or Romans before them.   The East is rising in its place, along with all the other places that are unburdened (or less burdened) with a culture of debt and entitlement.


Which brings me around to the notion of cashing in, if we can, on this global economic shift without being caught up in the boom and bust cycle that unfortunately has also emerged along with these new super-economies. 




Just a couple of years ago I wrote an article about Irish pension funds investing in ‘Chindia’ and with the exception of a few Irish fund managers, none of them had any direct exposure to Chinese or Indian companies directly. Instead their funds were represented only by UK or US companies with a presence in the two countries or with established Hong Kong based finance and insurance firms with long links with the West. 


Today, not only does every fund manager have some sort of exposure via this model, but many have created their own funds, or linked up with others in which indiginous Chinese, Indian, Brazilian, Russian, Malaysian, Vietnamese, etc global companies are present, often with western interests of their own. 


These companies – Baoshan (iron and steel) of China, Gasprom (energy) of Russia, Tata (consultancy, autos) of India, Petrobras of Brazil – are some of the biggest in the world; they’ve helped to drive their surging stock markets. 


They too have got caught up in the share mania in which hundreds of millions of people, with lots of earned income in their pockets and lousy deposit rates on their savings – thought they’d get instantly rich if they bought their shares at the pre-credit crunch peak last year.  That stock markets look like pyramid schemes sometimes has nothing to do with the underlying value of the Baoshan, Tata or Petrobras’ of this new economic world. 


Despite the volatility, the bubble risk, even the medium to long-term dangers of investing in companies that are fossil fuel dependent dependent (are Indian  motor car companies really a good long term pension bet?) the best emerging market shares should have a place in your investment and pension portfolios. 


Finding the right shares or funds is the part that’s going to require effort on your part:


Compare the makeup and cost of Irish-based emerging market managed funds, the equivalent passively-managed share indices and ETFs (which you buy directly from a stockbroker).  RaboDirect provides transparent, detailed information about all its funds, including its new emerging markets ones.

Use the internet to dig up background information about the countries, companies and commodity markets.  Check out the excellent free archives that Forbes.com, Bloomberg.com and the MotleyFool.co.uk make available.  

Subcribe to weekly magazines like The Economist and MoneyWeek. 

Only risk money you can afford to lose: a 60 year old speculator in Chinese bank shares has the potential to lose a lot more than a 30 year old investor in Chinese engineering firms that build nuclear power stations. 


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RaboDirect E-Zine - March 2008

Posted by Jill Kerby on March 01 2008 @ 21:39



It hasn’t gone away, you know - the global ‘credit crunch’. 


OK. It seems to be taking a breather, thanks mainly to sovereign wealth funds and central banks stepping in to bail out the investment banks that were most seriously exposed to US sub-prime debt.  


But the smooth lending between banks hasn’t yet been restored and there’s some way to go before they all ‘fess up to how much they owe each other and how they still need to write off. 


Meanwhile, back here on planet Ireland Inc., a positive spin has been put on last month’s ECB decision to keep their base interest rate at 4%; this signals that there will be no rate increase this year say the optimists.  


This is some consolation, but not much, to anyone still trying to pay off a €300,000 negative equity mortgage, not to mention the fuel, food, transport, health insurance and myriad of other day-to-day expenses that are still going up. 


Credit crunch or no credit crunch, life goes on.  Lots of us are still planning to buy new homes (or at least an extra bathroom or upgraded kitchen), cars, furniture and holidays. And some of us have no choice but to replace the banger with another banger or fix the clapped out central heating system.  


Anyone looking for credit this year should be prepared to come under a little more scrutiny, so let’s keep the positive spin going:  this is an opportunity to reflect on the true cost of debt, an unfashionable notion during the boom years when it wasn’t so much a matter of how to raise a loan, but how much of a loan to raise.  


I mean, who cared how much that €300K mortgage or €40K car loan really cost when the house was rising in tandem with your annual salary and that SUV with the bull bar was… well, it was just soooo cool. 


Now that the free bar is closed, the empties are being recycled and everyone’s sobering up, it is time to revisit the concept of ‘good debt’ versus ‘bad debt’. 


For example, good debt is the kind you use to pay for third level training or education because you can expect to eventually be rewarded with a higher income. 


Good debt buys you the home that not only provides shelter, but, historically, an annual value hedge against inflation. Given enough time, it can also produce a decent capital return.


Bad debt, meanwhile, buys liabilities:  expensive, depreciating cars, holidays, furniture, electronics, clothing, etc. These short-term purchases often end up with very long-term interest bills, especially if generated by the most expensive kind of revolving debt – credit cards. 


‘A bad loan is a bad loan is a bad loan’, Gertrude Stein would have said, if she was in the credit-seeking market today.  So for debt that smells of roses instead, consider the following: 


Only borrow what you need at the most competitive rate. A €300,000 mortgage repaid over 35 years at 5.24% interest will ultimately cost you €20,000 more than the same loan at 5%.


Always ask for total repayment costs – in writing.


Headline interest rates are… just that. Only a minority of borrowers will be offered that rate, this is because either your credit rating or the amount you are borrowing is insufficient. If your bank doesn’t automatically disclose the true cost of borrowing upfront (as RaboDirect does with its revolving ‘Credit Account’) you could end up with a nasty last minute surprise. Ask to see all borrowing rates and terms and conditions before you make a decision.


Aim to keep your loan repayment period as short as possible. The effect of compound interest, especially on a long mortgage or endless credit card debt can have a devastating effect on your long-term wealth. On-line banking can help you keep track of loan repayments.


If you haven’t already done so, switch to a 0%, low cost (ie under 10% interest) credit  offer that gives you between five to nine months to reduce your balance. Pay off your credit card balance by monthly direct debit and avoid paying any interest at all. 


Ask about fees and charges that apply to fixed rate loans. 


Be careful about balloon-end car loan payments.  They are seldom more competitive than a conventional loan. 


Beware sub-prime loan offers, or brokers who sell these products.  These toxic loans are only for people who are confident of quickly repairing their credit record so that they can avail again of conventional rate loans. 


Don’t bother with expensive payment protection insurance.  It is poor value compared to PHI or a serious illness policy that should meet repayments if you fall ill or disabled.  Savings will get you over a short-term income loss.  If the worst happens, you can sell the house and the car. 

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RaboDirect E-Zine - January 2008

Posted by Jill Kerby on January 01 2008 @ 21:44

Lenin once said the surest way “to crush the bourgeoisie is to grind them between the millstones of taxation and inflation."   


Comrade Vladimir was clearly never the owner of a high carbon-spewing SUV or he would have also added driving one to those petrol guzzlers to his list, but he certainly knew a thing or two about the soul-grinding business.  


So if you’re thinking of making any resolutions this New Year, they really should include this one:  finding a safe route between the inflation virus that is going to sap your income and savings of its spending power and the government’s determination to squeeze as much direct and indirect taxation out of you.  


I know a few people who’ve already jumped on a plane for overheated tax-havens like Dubai and Panama.  Or you can stay here, stop throwing your over-taxed money around like an eejit and discover that it really doesn’t take a genius to ride out an economic downturn.  You might even make some money.




But first, if you are in the proverbial hole, ask someone for a ladder. 


If you’ve never had someone review your taxes, assess your debts and assets or picked out a decent pension fund for you, 2008 should be your ‘Year of the Advisor’.  


The rich didn’t get that way through sheer hard work; they had help. Since most of us are basically just good at our own jobs and not at other peoples’ as well, you should pay money to consult someone who knows about maximising earnings, minimising tax and creating genuine wealth.  


If you don’t have the name of a fee-based, independent financial advisor (ask friends and family for a referral) contact the Financial Regulator at 1890 200 469 and get them to check their register to see if there is one listed in your area.  Expect to pay in the region of €150 an hour for the advisor’s service and expertise but don’t waste their time or your own money – go prepared with a concise list of all your financial accounts, contracts and policies so that these can be easily accessed and reviewed. 


Then take their advice. 




The Government has just admitted to being down about €1.6 billion in tax at the start of this year.  This doesn’t auger well for those of us who not only pay income tax, but VAT, CAT, CGT, and all the other little ‘Ts’.    


With no obvious tax fraud campaigns on the horizon, the Exchequer will be counting on the Revenue to bring in every tax penny from the tax compliant as well as the evaders.  


If you don’t get a professional tax check, at least take the time to claim all your legitimate tax reliefs and allowances in 2008. Go onto the Revenue website www.revenue.ie where they have provided a helpful list of these deductions.  The most obvious ones that are overlooked (to the tune of over a billion euro a year) are for health and dental expenses, private rent payments, bin charges, trade union fees, etc.  Mad as it sounds, there are still stay-at-home mums with small kids who don’t claim the €900 annual per child tax credit to which they are entitled.




The official inflation rate is 5% at last count, but anyone who eats and drinks, pays a mortgage or rent, travels via public or private transport, pays for health insurance or alas, has an expensive shoe habit, knows it is much, much higher.  


So here’s a novel thought:  spend less and save/invest more this year.   


Spend less by buying fewer shoes …or cappacino’s, takeaways, dvds, alcohol, cigarettes, electronic gadgets, widescreen tv’s, weekend breaks.  Eat the groceries you buy, rather than throw a third of them away due to spoilage and waste (that’s over €4,000 for the average family). Drive a smaller, fuel-efficient car and save thousands in tax, petrol, insurance and maintenance costs (especially after July when new VRT rules come in.) 


On the savings front, open the highest yielding demand and savings accounts you can find (you might want to start on this site) for short-term interest and access.  But realise that inflation and DIRT – just as Vladimir predicted - are going to reduce your nest egg by at least 6% a year if you spend your interest. In just five years a €10,000 stake earning 5% will only have the spending power of about €7,400, a 25% loss in wealth. 


Instead, you need to start investing in the stuff that is so in demand, and so short on (and in) the ground -  such as oil and gas, metals, water, foodstuffs and the machinery that extracts and produces all these goods and commodities.  


Set aside a portion of your salary every month to buy into these sectors through individual shares or funds of shares; ETFs and the RaboDirect investment suite of global commodities are worth a look.  


Precious metals like gold, platinum and silver have also surged in price, not just because they’re useful to wear and put into catalytic converters, but because an increasing number of people are concerned not just about getting a return on our money, but of our money. 


If you can wind these funds into a tax-efficient pension, all the better. 


Without the benefit of a crystal ball, I’ve no idea if the optimists who say that everything will be wonderful again in Ireland Inc in 2009 are right or not. I look across the pond to America and I have my doubts.


All I know, dear comrades, is that bracing yourself for a bumpy ride sounds like a better option than standing in front of what might turn out to be a runaway train. 

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