NFB FINANCIAL UPDATE Volume63 Jul2012
FROM THE CEO’s DESK
W
e have been through a period of remarkable volatility in Global Markets, led by Europe, but certainly not their preserve. The euro, as a major currency has been beaten up, many of their markets have given up remarkable value, the key borrowing rates of the Club Med countries have gone through the roof and yet Germany is able, as a major player in the "contagion zone", to record negative interest rates when borrowing two year money in the capital markets. Someday, not necessarily soon, these unusual events and markets will reverse. For more risk tolerant investors, this will signal a superb buying opportunity as equities and bonds, as well as property, begin to pay decent dividends, rentals or income, and banks, both commercial and Central, begin to balance their books. An alternate outcome, most feared by Governments and Central Banks alike, is a Japaneselike meander through nowhere! The Nikkei has been a sad tale for over twenty years now. Returns in any form are difficult to find, but impossible to predict, and cash or property offer little respite. Interestingly though, as is almost always the case, the Nikkei has not been flat for twenty years. Although the outcome is desperate should you have remained invested in it, if you were able to trade, the Nikkei has offered, similar to Europe and the Western markets in current times, significant volatility and accordingly, opportunities to profit.
Quite obviously, the sad tale of mis-timing this strategy is equally true, so I am not for a second motivating our clients to go out there and take on the European markets! What NFB continues to strive towards, is the correct blending of investment strategies where we
successfully blend aggressive traders with those who seek out deep value or high dividend paying stocks, and do so both on a local as well as global basis. These are further blended with experts from the cash, fixed interest and property sectors to arrive at an outcome best suited to individual investor's needs and appetite for risk. The 21st century, I feel, will continue to generally muddle along for quite some time. It will suit Central Bankers and Politicians alike to favour cheap money remaining the order of the day. This in turn will at some point bolster inflationary pressure as consumers and corporate,in typical boom and bust style, fill their coffers with cheap money, triggering the unavoidable consequence, i.e. demand side inflation. A further global inflationary risk will, I feel, be triggered should China cease it's subsidy of many inputs into Chinese production. If they raise taxes, costs of utilities, public transport, or any number of inputs, this could rapidly need to be passed on to global consumers, triggering further “push” inflation. Inflation, if controlled,is not all that bad an outcome for the Globe. It will diminish the size of the hole, making it easier for countries to repay the extraordinary and unprecedented levels of debt created in the recent meltdown. The danger is hyper inflation where control is lost of the increase in prices and great harm is done, particularly to less wealthy communities and countries, and notably to people in retirement, unable to invest in typically inflation proof or protected assets. Central Banks have an important role to play in this space, managing money supply and accordingly managing the market and economy and diminishing these risks. In the current environment, tax efficiency remains important, as retention of as much of the meagre, predictable return available is important. Clever use of dividends from shares, preference shares or drawings from tax efficient investments, rather than from taxable sources, such as pensions, can alleviate your tax position. This needs detailed assessment and I would advise this being discussed with your investment advisor or accountant.
IN THIS ISSUE From the CEO’s desk Unit trust or a retirement annuity? SAIF remains SAFE
financial services group ® Mike Estment, BA CFP CEO, NFB Financial Services Group