October 2008 – Lest We Forget


UK Prime Minister Harold Wilson once said, “A week is a long time in politics.” Well, 2 ½ years must seem like a lifetime in finance as we have gone from the sublime to the ridiculous. Just to remind those people who were vacationing on Mars, this was the month when stock markets all over the world tanked and central banks started to print money at a rate not previously known in the hope of stopping a total worldwide financial collapse.

Yet despite us narrowly avoiding falling into the abyss people have been setting up new funds and investing in equities as though there is no tomorrow. In America, the Investment Management Association showed that in the most recent tax year the net ISA sales went up to GBP3.7 billion which is the second highest total since the turn of the century.

It all looks so rosy now. This is why equities have done so well. Since the market lows of just over two years ago, equities have shot up, as has gold and other commodities. However, the total of American issued debt has risen by over fifty percent.

In a recent article, Yogi Dewan from Hassium Asset Management reckons that people are so desperate to do well that they are ignoring the potential pitfalls. He goes on, “So far the Government’s solution to the credit crisis, ultimately caused by too much debt, has been to issue yet more debt. Liabilities have been simply transferred from the private sector to the public sector; from banks and mortgage institutions to governments. The US currently has USD 14.3 trillion of debt in issuance; the same size as their economy. Ireland, Greece and Portugal have all had to accept bailouts because financial markets have lost faith in their ability to repay their obligations. The UK’s debt position remains only marginally better. The global debt situation is arguably worse now than it was in 2007.”

As an analyst at MitonOptimal said recently, “There will come a point when markets will react negatively to yet more debt. The warning signs are already there with the issues in peripheral Europe and the sovereign debt downgrades we have seen in 2011. At some point investors will stand up and say ‘enough is enough’ and they will not be as forgiving of overstretched sovereigns as they currently appear to be.”

So why has all this happened? Why have investors forgotten what happened less than three years ago? It was the Spanish philosopher Santayana who wrote that, “Those who have not read history are condemned to repeat it.” It would seem that present day investors have forgotten how to read.

MBMG wrote a twenty four page article last month entitled the Four Horsemen of the Apocalypse. In this we explain the past, present and future and how to avoid any potential pitfalls. Basically, précising the entire commentary, it says that the future is bleak, if it was possible to live off what you had in the bank then great but with interest rates at no more than three percent then it will be very hard to do this. Therefore, you have to invest whether you like it or not. So, multi-asset, multi-management investment is the way to go whilst remaining, above all, liquid.

If you would like a free copy of our leaflet then please just let me know.

The above data and research was compiled from sources believed to be reliable. However, neither MBMG International Ltd nor its officers can accept any liability for any errors or omissions in the above article nor bear any responsibility for any losses achieved as a result of any actions taken or not taken as a consequence of reading the above article. For more information please contact Graham Macdonald on [email protected]