Lonsdale Financial Consulting Limited

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For our pre-election Spring commentary follow this link

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Following on from our Bulletin after the Autumn Statement, please find our latest Bulletin looking at Wednesday’s Budget. With this and the already announced changes to pensions, it is even more important that you have a cohesive financial plan which puts you at the centre of any decisions. More so than ever before there is no one size fits all.

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So for New Year I’ve come to Polzeath in Cornwall for some end of year surfing and of course a party to say goodbye to 2014 and hello to 2015. Whilst I’m here in my Airstream I’m penning this quarter’s commentary desperately trying to find some inspiration and enthusiasm to write something positive about the outlook for the global economy. 

Like the quality of the surf so far this last week, global markets have recently been very choppy. There have been no defined parallel and ordered sets on which to carve confidently on the crest of the wave, just a jumbled mass of white water bubbling and boiling into the shore catching out the unsuspecting investor if they are not careful.

Due to a nasty rip current, Britain’s top equity index, the FTSE 100, ended the year lower than it began as commodity stocks surrendered early gains and fell sharply during December after a retreat in oil and metals prices. For the first time since 2011, the FTSE 100 ended the year lower at 6566, 200 points off of its January 2014 starting index.

Considering the FTSE flirted with the 6900 level on several occasions over the year, predictions of a year end 7000 level certainly did not look too outrageous.

This year saw the end of US quantitative easing, something that many had worried over but markets took in their stride. The legalities of Russia’s annexation of Crimea will be debated for years to come, a timeline similar to the sanctions the West has imposed on Russia.

The economic picture materialising out of China has seen a continuing cooling of its economy, not down to levels of Western nations but sufficiently low to see commodity stocks do some serious rescaling of their future expectations.

The oil price in the last six months has also collapsed by 50 per cent, as Saudi and OPEC nations play hardball over market share. Early expectations of a showdown between the US and UK in raising rates in 2014 has ended with an unspectacular flat sea and absolutely no moves. 

As we look into 2015, the water is muddied by Greek elections that threaten to reignite the Eurozone crisis, while there’s no end in sight to the rout in oil prices. The FTSE lagged its peers for most of 2014 and with conditions as they are it will struggle to catch even a two footer in the year ahead.

So is there any good cheer for the New Year? Well, of course there is, like the sea, the global economy ebbs and flows as the wind and tides change and whilst some shores have poor conditions, others have perfect 12 foot rollers on which to ride. 

Inflation remains very low due to energy prices and this helps the consumer in the developed World, therefore the UK and US economies are likely to continue to grow, something very evident in property values that have been increasing steadily all year with only December showing a slight slowdown.

With oil prices lower, developing and emerging economies now have a real opportunity to prosper and can take advantage of the sluggish behemoths as they slowly sink under the weight of debt and falling demand, a note of caution here though, this position could be short lived and for some will end in a total wipeout.

The largest economy of all though, will still lead the way as US economic growth is predicted to be a full percentage more than in 2014. The continued recovery in the US means the country’s central bank, the Federal Reserve, will probably raise its main interest rate, which has been close to zero for six years.

Stronger economic growth and increasing spending can lead to higher inflation, which can be contained by higher interest rates which would make American markets more attractive to investors, so funds could be pulled out of other countries.

The danger here is, that it might happen in a disruptive way that leads to sharp currency declines, higher inflation and rising borrowing costs for governments and business in developing countries, however the Federal Reserve has said that many emerging economies appear better equipped to handle the Fed’s move than they were in past.

So, there is some cheer out there and we should look forward to a positive 2015. It might not be the set that sees us all surfing through the perfect barrel, there will surely be some sackings that lead to a washing machine ride or two, but it’s likely to be a reasonable year of growth and progress. 

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Following the last autumn statement before the general election, please find herewith a summary of the main areas covered by the Chancellor.

The previously announced sweeping changes, to how pension benefits can be taken and passed on through the generations, remain intact.

Please do contact Laurence or Nick if you wish to discuss how these changes will impact on your own circumstances.

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Commentary Sept 14

I am writing this commentary whilst sat in a small town near to Chamonix over looking Mont Blanc, you would think that the beautiful scenery, crisp clean air and delicious French cuisine would provide me with more than enough inspiration to write an uplifting commentary in just a few short minutes. You would be right!

Whilst indulging myself in my love for the mountains, I have also been looking at property for sale in the Chamonix valley and have had the opportunity to talk to many local estate agents, business owners and local people about life in this part of the World.

What I found interesting was the optimism and positivity the French have here. It’s safe to say, property in this region is out of the reach of most local people, and so you would be forgiven in thinking that they would dislike outsiders, after all, it’s the Brits and the Americans that have driven the property values up to ridiculous levels here. But no, the French are so much more pragmatic, the local shop keeper, the farmer, the estate agent, the baker, the butcher, they all recognise that to sustain and grow a healthy economy you must embrace change, you must diversify, you must attract international money.

I was chatting to a Guy who was repairing a road high up above the valley and he explained that the area needed outsiders with different views to the ways in which they have always done things in the village. He acknowledged that some of the older generation do not like change but it was necessary, many skills and talents come into the area that help the economy change and prosper.

This got me thinking about our own economy in the UK and as luck would have it a Tweet from the HM Treasury attaching a speech from Andrea Leadsom, the Economic Secretary who was recently at the Foreign Direct Investment Forum.

I didn’t realise but foreign investment into the UK is currently running at over £1 trillion and has created 100,000 new jobs generating economic growth we badly need. Recently the news has been dominated with the Scottish referendum and many Brits and Scots were calling for a true north/south divide, thank goodness this did not happen. Only six days before the referendum, George Osbourne and UK business leaders were at the China-UK Bilateral Investment conference where they signed deals for inward investment totalling £3.9 billion strengthening economic ties between our countries. The investments brought £1 billion to the regeneration programme of the Royal Docks in the East End, £800 million to the Manchester City Airport project and £790 million for the Battersea Nine Elm zone redevelopment.

Outward investment is also huge and we are second only to the US as successful outward investors which helps the UK export market massively. Jaguar Land Rover has benefited tremendously from outward FDI and support from the UK government resulting in unprecedented growth in markets such as China and Saudi Arabia.

The government target is to double annual UK exports to £1 trillion by 2020 through help with export finance, export insurance policy and through a share risk scheme. At the moment our exports to EU countries account for 55% of the total. The UK has signed a number of critical free trade agreements in Asia and developing economic regions in order to take advantage of the growth happening across the global economy.

To me me it’s both uplifting and exciting to think that the United Kingdom is one of the most important international inward and outward foreign investment areas in the World and this can only bode well for our continued economic prosperity, I hope we therefore remain United!

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Commentary June 14

Last quarter I ended my commentary with “it’s likely to be an interesting 3 months” and it certainly has been. Whilst the fundamental building blocks all seemed to be stacking up nicely to support a new era of sustainable growth, there were still some major issues underpinning the foundations. These have now started to crumble under the weight of expectation and mis-guided exuberance and the immediate future looks a little more precarious than the original architects had planned.

So what has happened to upset the recovery? What recovery some may ask, as most have seen little evidence of improvement to their situation. Well statistically in the UK we have been in recovery since quarter 2 2012, all be it a very slow one with very poor positive returns until the end of 2013 and beginning of 2014. Basically all of the growth in the UK has happened in just 6 months and suddenly house prices in the South are rocketing and people are starting to spend. Unemployment is down again and investment in the UK is once again increasing. But it’s not the same story elsewhere, we may be forgiven in thinking that developed economies such as the Eurozone, North America, Japan, would all be on the same road to recovery as ourselves, however this is not the case.

The ECB last month cut interest rates to just 0.150% to try and keep the economy moving as a lack of investment meant that the Eurozone recovery has started to stall. The US suffered a very harsh winter and as a result it’s GDP was down 2.9% in the first quarter of 2014 as the housing market was the hardest hit. Japan’s exports declined for the first time in 15 months as Asia and US demand fell away. At the same time domestic consumption fell due to an increase in national sales tax and the economy has faltered so much that the Bank of Japan may be forced to start another round of QE.

Even though the above makes the recovery look a little shaky, most medium term out looks are positive and still the markets move on at a reasonable pace. In my opinion the most worrying news at the present time is the appetite of the investor for IPO’s ( initial public offering ). We have not seen this amount of activity and at these prices to earnings ratios since 2000, we have to ask ourselves, who really stands to win from an IPO, the investor or the board of Directors? It’s easy to get caught up in the hype with the promise of long term growth and rising dividends as a result of the extra investment, but as we have seen in the past this is rarely the case.

So we have a dilemma, do we believe the governments and central banks when they say we are starting to prosper again and so we should build, or do we heed the historians who study the stats, and simply land bank. At the end of the day we are all greedily cautious, we want returns but we also want no risk. These are the times when a fully diversified portfolio is imperative, one with different asset classes, invested in many sectors and differing geographic regions. It’s not the time to chase the shiny penny or blindly follow the crowd. It’s definitely the time for restraint and and sound principles in order to avoid getting caught up in the next Lastminute.com.

At LFC we believe in following strict processes which are based on tried and trusted methods of asset allocation management that ensure we remain disciplined and stay on the correct path and do not wander off in search of the “next best thing”. This seems boring, however, the past has taught us that it is time in the market not timing the market, that provides long term sustainable returns and reduces volatility. It also helps our clients and ourselves sleep at night.

There may have to be some underpinning done to shore up some of the developed economies over the next few months, be that via, interest rate movement, QE or other stimulus, but generally the mood is positive and if the hype can be dampened down sufficiently we see a reasonable year end. Certainly, Osborne and Cameron will not want to see the good times end before next spring and will do plenty to keep the electorate feeling positive with job creation, house building and spending on public services, I just hope the numbers add up and they are not building a Leaning Tower of Pisa!

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The Bingo Budget A decade ago, sitting watching the Chancellor deliver the Budget would not have been one of my most enjoyable activities, but yesterday, I found myself totally enthralled and unable to turn away from the TV even to make a cup of tea. Perhaps it's an age thing, I remember my Father, hushing us at the diner table the evening of the budget so he could listen to the highlights after work and sometimes he could become very animated depending on what was said. These days we get two bites of the cherry, the pre-budget statement and then the budget for real, so often the March statement is an anticlimax as the chancellor tells us what we already know. This time however, there were a lot of interesting changes that were not mentioned in the Autumn statement and this made for a much more exciting speech. With the 2014 Budget, George Osborne, in my opinion, got the balance just right, he extended the Help to Buy scheme and freed up more financial support for housing development schemes, knowing full well that the economy hangs off of the residential housing market. We have seen unemployment fall by 7.2% last year and further incentives will be announced for more apprenticeships. Corporation tax has been cut and the Seed Enterprise Investment Scheme will be a permanent tax relief scheme to help new start up businesses. This all bodes well for the prediction of a 2.7% growth that the UK economy is expected to see in 2014. For savers he made the most interesting and positive improvements by simplifying ISAs so that there is one vehicle called the NISA into which we can save £15,000 each per tax year and hold these investments in a wide range of assets from 100% cash to 100% equity or any combination. We can amalgamate all of our existing ISAs into the NISA. Junior ISA limits have also been increased to £4,000. On top of this a new Pensioner bond from National Savings is to be launched in January 2015 for investments of up to £10,000 and this is likely to be a 1 year and 3 year termed deposit offering 2.8% for 1yr and 4% for 3yrs. NS&I are also to increase the amount an individual can hold in Premium Bonds from £30,000 to £40,000 in June 2014 and then to £50,000 from 2015 with two jackpots of £1mil each month. But even better than all this, I know, how can it get any better? Well, pensions have received a massive boost of flexibility which will at last make them attractive for retirement provision. For many years pensions have been losing popularity due to falling annuity rates, difficult investment markets and very restrictive rules on how benefits can be paid at retirement. George, thankfully has realised that if we save our hard earned income into a savings pot for our old age, we are very unlikely to go and blow it all on the 4.30 at Kempton Park the day we retire, he has therefore seen fit to open up the retirement rules so that we can have greater flexibility. Instead of being forced down the annuity route, now we will be able to access our whole fund if we choose to. Obviously there are some restrictions and tax consequences to consider, but this new flexible drawdown facility places all of the choice and control into the hands of the saver, not the insurance companies or annuity providers, and that's a good thing. These moves alone should be enough to get savers looking at pensions again as a credible vehicle for retirement planning. Finally, Bingo! Yes, it's been a long time coming but at last, Bingo winnings tax has been reduced from 20% to just 10%. About time too I hear you cry! It's a sure sign that George Osborne delivered a really good Budget when the only criticism to come from the Labour opposition is to complain that the Conservatives are being condescending to the voter by advertising the reduction in the Bingo Tax! So from all this positivity we would naturally expect the investment markets to be roaring ahead today, after all, unemployment is down, investment in industry is up, Hitachi is to make trains in the UK, more money for more houses, savers get something to cheer about, tax payers to pay less tax, it's a full house! I'm afraid not, it's still all eyes on the US and Russia as they square up for an arm wrestle or at worse a punch up. I fear we have an interesting 3 months ahead.