NFB Proficio Vol 54

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NFB FINANCIAL UPDATE Volume54 Feb 2011

FROM THE CEO’s DESK

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hilst the developed world wrestles with unemployment, credit freezes, disheartened consumers - the list goes on - we in the so-called Emerging Markets (note the capital letters) are pressing on regardless. Growth rates astound in certain geographies and when the developed basket cases resurface, it appears that this will only serve to further underpin the results from yesterday's minions. Xmas 2010 was preceded, notably even in S.A., by some biggish Special Offers, otherwise known as Big Discount Sales. Whilst all of this has been going on in the towns and cities, the share prices of the markets have had a jolly time. Our market is at levels last seen just prior to the crisis. Dividends have also come back into fashion. Pundits are saying it's different this time (I wonder where I have heard this before) and are calling the markets higher. The potential for disturbance of this trend is unlikely to come from the weakening of the rand as our trading partners struggle with diabolical debt and the issues mentioned above. It is similarly probable that we will see rates lower for quite a while; particularly overseas as they reenergize their consumers and attempt to trade out of the mess they are in. Politics is where our risk lies and, in particular, the rather uncomfortable place the ANC finds itself in, in respect of its allies, both in Organized Labour and the ANCYL. Promises have been made to ensure votes and now it is time to deliver. This, given the precarious nature of local and international economies, is a perfect storm brewing. Last year's ridiculous wage settlements serve as a harbinger of favours being settled with scant regard to their immediate and long term impact. Particularly hard hit in this “lower for longer” environment are the less wealthy savers or pensioners, bit both by ridiculously low returns on cash and a tightening of the Fiscus in the form of direct and indirect taxes. Notably, interest returns to investors have more than halved in this cycle. Conservative pension funds are beset by this problem as well, struggling to deliver inflation beating returns net of costs. But politicians don't deserve 100% of the blame. I find the typically bipartisan arrangements within most countries' political systems, and more particularly the West, rather confounding. No matter what is being promoted or implemented, those not in power swear blindly that the policy of the day is ruinous and foolhardy. What never fails to amaze me is the blind loyalty most often showed to these clowns. The only problem is the immense

impact these political games have, and continue to have, on the public at large. Politicians are not fond of making unpopular calls. They would rather travel the road of least risk than risk defeat and an abrupt push off the gravy train. Interestingly, one country which is not much talked about, and yet has over the last twelve or so years taken the medicine, is Canada. Previously the ugly duckling of the Americas, this country cut its budgets, reduced deficits and cut head count in State and Regional Government; all in a period leading up to and in between elections. Now, during and post the economic crisis, it is reaping the rewards of these well thought through policies. Lessons might be learned by Canada's southern neighbor. Well, it is a nice thought anyhow! So, back to S.A. and our hard-hit savers and pension funds. We at NFB have, for years now, been advocates of investments with an income bias. Most of our readers would have been exposed by our advisory teams to Liberty Life's Property Fund. This large, unlisted portfolio which includes their Crown Jewels, including Sandton City, Eastgate and other mega regional centres, as well as some office and hotel assets, has for 20 plus years delivered cash and inflation thumping results, net of tax and management fees. In addition to this and other Property assets, such as listed property funds, we have used equities with higher than average dividends and Preference Share Funds to support this aim. This approach is not going to change soon. These funds and shares will, in the short term, deliver premium cash flow. When the markets finally re-rate, these investments will be rewarded as they offer similar or better capital growth, as well as superior income. It is fitting to once again remind our readers that there are many unsavoury investments out there. Much has been written about certain property funds, notably in Gauteng. We would advocate great caution when considering the reinvestment of capital from maturing investments into any but the most well known and reputable institutions. We would happily provide a second opinion if this is needed, as the risk of losing one's capital in an effort to secure a higher return, probably similar to that which you originally invested at a few years ago, is great. We wish our clients and staff all the best for 2011. May the year deliver health, happiness and good fortune to all. Mike Estment, CFP® BA CEO, NFB Financial Services Group

IN THIS ISSUE From The CEO’s Desk Retirement Annuities (RA) - The Black Sheep In Pursuit of Safety

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