Archive | May, 2012

The Markets and What’s Next?

21 May

The markets have seen a sell-off in the recent past and I expect this to continue untill some stability returns to the market and this is unlikely until the Greek Elections in June and a government is formed, at the earliest assuming no additional market controvecies.

It is clear that the problems in the Eurozone will keep a chokehold on financial markets in the weeks ahead. Investors and the markets are currently assessing Greece’s commitment to the austerity measures and the Eurozone as a whole – we await other headlines on the debt crisis.

G8 Meeting over the Weekend


G8 strongly supported keeping Greece in the Eurozone. No decisive decisions were made but confirmed they would do what was necessary to battle financial turmoil while revitalizing their economies. They stressed the need for strategies to encourage growth.

Greece’s failure to form a ruling coalition after its May 6 election has now led it to a second election in June. Polls show the radical left party is in the lead, and that party rejects austerity measures agreed to as part of the Greek bailout.


Reports This Week

  • Monday & Tuesday – Atlanta Fed President Dennis Lockhart speaks in Tokyo on monetary policy
  • Tuesday – US Treasury auctions $32 billion in 2-year notes
  • Wednesday – US Treasury auctions $32 billion in 5-year notes
  • Thursday – New York Fed President William Dudley at Council on Foreign Relations & US Treasury auctions $29 billion in 7-year notes
  • Friday – Consumer Sentiment Report

My contact details are :- tel 029 2020 1241, email, twitter welshmoneywiz, linkedin Darren Nathan

Pros and Cons of Offshore/International Bonds

16 May
Most reasons to consider offshore/international bonds include:-
  • Simplicity
  • Price
  • Access
  • Risk profile
  • Fund choice
  • Currency
  • Future aspirations and objectives
  • Tax

The actual reasons are specific to the client/investor and care is needed as there are many alternative investment structures, which maybe more beneficial and suitable.

Taxation of the offshore bond

Single premium investment bonds are taxed under the chargeable event legislation, which means gains are assessed to income tax, rather than capital gains tax (CGT).

As the bond is invested with an offshore insurer it does not suffer any income tax or CGT within the fund except for any unreclaimable withholding tax which may have been applied.

Any gains, dividends, rent or interest are taxed at 0% within the fund.

Taxation of the bondholder

For individuals any chargeable event gains will be chargeable to tax at their appropriate rate (typically, your highest marginal rate including the gain created by the encashment :- 10%, 20%, 40% or 50%.* Trustees will pay tax at 50%.

Taxpayers can use their personal allowance and their highest marginal rate of between 10% and 50% tax bands when calculating overall tax liability. For trustees, the first £1,000 worth of chargeable event gains (assuming no other income) is taxed at 20%.

For highly personalised bonds it’s important to remember that for UK resident policyholders there is a deemed charge of 15% of the premium and the cumulative gains per annum.

Advantages of the offshore bond wrapper

  • Bonds are non-income producing assets so there are no annual tax returns for individuals or trustees (also true of onshore bonds where charges are typically lower).
  • Funds can be switched within the bond without giving rise to a CGT or income tax liability on the investor and with no tax reporting requirements (also true of onshore bonds where charges are typically lower).
  • Switches in and out of funds are not subject to the CGT 30 day rule so will not give rise to a taxable event (also true of onshore bonds where charges are typically lower).
  • Income received gross within the bond wrapper will only suffer income tax on future disposal (basic rate tax is deemed and payable under an onshore bond wrapper).
  • Tax liability is reduced proportionally for time spent as non-UK resident (this excludes normal holidays and is applicable to typically time living abroad).
  • The bond can be assigned by way of gift without giving rise to an income tax charge, although there might be inheritance tax (IHT) considerations (also true of on-shore bonds where charges are typically lower).
  • 5% tax deferred allowances on each premium paid can be taken each year for 20 years without incurring an immediate tax liability (also true of on-shore bonds where charges are typically lower).
  • For the purposes of age allowance, withdrawals within the 5% tax deferred allowance are not treated as income (also true of on-shore bonds where charges are typically lower).
  • Realised chargeable gains may benefit from slice relief which can reduce or remove any higher rate liability (also true of on-shore bonds where charges are typically lower).
  • Top-ups will benefit from top-slicing from inception (individuals only) – (also true of on-shore bonds where charges are typically lower).
  • Multiple lives assured on a whole of life contract can be used at outset to avoid a chargeable event on death of the policyholder, or where there is more than one policyholder, on the death of the last of them to die (also true of on-shore bonds where charges are typically lower). Alternatively, a redemption contract where no lives assured are required can be used (typically not available with an onshore bond).
  • Can be gifted into trust and assigned out of trust without giving rise to an income tax or CGT charge (also true of on-shore bonds where charges are typically lower).
  • Single premium investment bonds are not normally included where means testing is applied by a local authority for residential care (also true of on-shore bonds where charges are typically lower) but care is needed and further advice before assuming to be true.
  • Wide investment parameters (also true of on-shore bonds where charges are typically lower).
  • Ability to appoint third-party custodians and discretionary managers (also true of some onshore bonds where charges are typically lower).

Disadvantages of the offshore bond wrapper

  • On encashment, chargeable event gains can suffer tax up to 50%*.
  • As withdrawals from a bond are assessable to income tax, it’s not possible to use personal or trustee Capital Gains Tax (CGT) allowance to reduce gains.
  • Base cost of the investment is not devalued on death for income tax purposes (chargeable event gains are assessable against original investment and any subsequent additional premium paid).
  • Death of last of the lives assured on whole of life contracts will create a chargeable event (even if bondholders are still alive).
  • Chargeable event gains reduce any available age allowance based on the total gain, not sliced gain applicable where total income exceeds £22,900.
  • May not be suitable where ‘income’ interest exists inside a trust.
  • Investment losses cannot be offset elsewhere.
  • On death of the last of the lives assured, income tax and IHT may be due.

* Finance Act 2009 increased this to 50% for trusts and for individuals with income in excess of £150,000 from April 2010.

This article is based on interpretation of the law and HM Revenue & Customs practice as at July 2010. I believe this interpretation is correct, but cannot guarantee it. Tax relief and tax treatment of investment funds may change in the future.

This article provides a high level summary of the potential advantages and disadvantages of offshore bonds held by a UK-resident investor (excluding companies). I cannot accept any responsibility for action taken based on this or related articles, as this is solely for information purposes and is not advice nor recommendation.

My contact details are :- tel 029 2020 1241, email, twitter welshmoneywiz, linkedin Darren Nathan

VAT to be charged on Discretionary Management?

14 May

So,  with the European Court of Justice (ECJ) declaring discretionary services should be subject to VAT. Many will be effected by this, if it becomes legislation. Those effected with be anyone receiving discretionary management services, such as, through a Stock Broker, Discretionary Fund Manager, etc.

This announcement was in response to a question by the German high courts about Deutsche Bank’s VAT treatment of its discretionary services. The ECJ recommended all elements of Deutsche’s discretionary services – including initial charges – should be subject to VAT, backing a clarification by HMRC earlier this year.

HMRC has stressed that the statement from the ECJ is currently “just an opinion” and not a final decision. The final decision is expected to be made in Germany in the near future.

If this is the final outcome, there may be legal implications for the UK afterwards; and in this instance, the ECJ statement was “in-line” with the European Union’s taxation rules. On 29 February 2012, the HMRC issued guidance on fees and VAT preventing discretionary fund managers from NOT paying VAT in this manner. This is due to come into force in 2013 alongside the FSA’s RDR overhaul of financial advice.

Stock Broking and Discretionary Fund Management companies offer only a single packaged proposal and as such this is settled case-law that i.e. where a transaction comprises a bundle of elements, regard must be had to all the circumstances in order to determine whether there are two or more distinct supplies or one single supply.

Moreover, in certain circumstances, several formally distinct services which could be supplied separately must be considered to be a single transaction when they are not independent.

The advocate general concluded that the portfolio management services of the kind at issue “form a single supply for VAT purposes” and as such, these services do not fall within the exemption provided for on the common system of value added tax.

My contact details are :- tel 029 2020 1241, email, twitter welshmoneywiz, linkedin Darren Nathan

Taxation of Collectives within an Offshore Bond

14 May
Taxation of the collective investment when held as an asset of an offshore bond – income

Any income received (dividends or interest) within the offshore bond wrapper from the collective is deemed to be received gross. Withholding taxes may apply which may not be reclaimed.

The 10% notional tax credit issued alongside any UK dividend income cannot be reclaimed by the offshore bond provider or investor.

The income will remain in the fund, untaxed, until encashment from the bond by the investor.

Taxation of the collective investment when held as an asset of an offshore bond – capital gains

The collective would suffer no ongoing capital gains tax within the offshore bond.

Realised gains would be subject to tax when the investor encashes the bond.

Investment losses cannot be carried forward although any deficiency loss created on encashment may be available to offset any higher rate income tax suffered by the investor.

Switches made within the bond will not generate a tax charge.

Principally, where a collective is held within an offshore bond, the policyholder is only liable to tax when they encash the bond.

Encashment of the bond by the policyholder

On encashment, assuming a chargeable gain has been made, a chargeable event would occur and the investor would be liable to income tax on this gain at their HIGHEST MARGINAL RATE.* However, personal allowances and the 10% tax band** would be available where earned income levels were sufficiently low. A basic rate taxpayer would be liable to tax at 20%.

* Finance Act 2009 increased this to 50% for trusts and for individuals with income in excess of £150,000 from April 2010.
** Bond gains are deemed to be savings income.

This article is based on interpretation of the law and HM Revenue & Customs practice as at March 2010. I believe this interpretation to be correct, but cannot guarantee it and the Tax Relief and tax treatment of investment funds may change in the future.

 I do not accept any liability for any action taken or refrained from being taken on the basis of the information contained in this or any related article. With all tax planning, it must be reviewed on each person’s personal circumstabces and the information provided in this article is for information purposes and is not advice nor recommendation.
My contact details are :- tel 029 2020 1241, email, twitter welshmoneywiz, linkedin Darren Nathan

Change to Pensions – Protected Rights

10 May

From 6 April 2012, Protected Rights will no longer exist. A uniform approach to all benefits from money purchase pension savings (e.g. ocupational money purchase schemes, Personal Pensions, Group Personal Pension and Stakeholder Pensions) will apply. This will simplify the current regime for all money purchase pension schemes and the investments will become available in the same way as currently applies to non-protected rights.

This article considers the advice issues, both short and long-term, that this change brings to the current private savings market. The short-term issues focus on clients currently considering taking retirement income from pension savings that include a proportion of protected rights. Delaying crystallising these benefits until the new tax year may provide significant additional benefits. The key considerations are:-

Pension Commencement Lump Sum
As part of any retirement process a Pension Commencement Lump Sum (PCLS) is an important choice available to clients. Under current legislation, there is a limit of 25% for any PCLS arising from any protected rights investment. Money purchase occupational schemes and section 32 buy out policies often include protected rights within the investment. In this situation, depending upon the mix of protected rights and non-protected rights, full entitlement to a protected PCLS may not be achievable. Deferring any benefit crystallisation until 6 April 2012 or later could increase the PCLS available from those contracts.

Annuity provision
By delaying the purchase of an annuity from current protected rights investments male clients will avoid the need to buy an annuity using unisex, unistatus annuity rates. More importantly, where there is a surviving spouse or civil partner the need to provide a contingent income for that partner within the annuity can be avoided.

Capped income
On a similar vein, clients with protected rights held in Sectio 32 buy out policies cannot, under current legislation, have any income withdrawal from those plans. Delaying any benefit crystallisation event from such contracts, which includes the Section 32 buyout bond, until the new tax year, means full income withdrawal can become part of the client’s retirement income planning.

Flexible drawdown
This is not available for protected rights investments. From 6 April 2012 it will be available for all eligible clients on accounts which previously held such rights.

However, you must remember to balance the benefits of deferring crystallising benefits with the potential issues that continued falls in the markets, annuity rates and GAD rates may bring for the potential income for these clients.

Longer-term consolidation options and issues

In the past many directors and key employees of limited companies used occupational pensions to fund their retirement provision. Contracts such as small self-administered schemes and executive pension schemes were prominent in the pre 2006 era for such people.

However, these schemes could only usually accept contracted-in contributions and could not accept rebates for individuals wishing to contract out of the State Second Pension (S2P). This may have resulted in you having to use a personal pension to contract out.

The abolition of protected rights from 6 April 2012 means you should review your existing provisions. You can now  consolidate assets into one registered pension scheme considering other relevant changes in legislation that have taken place since A-Day (6 April 2004).

This may simply require moving the rebate-only personal pension into your occupational pension scheme. However, we will need to ensure the occupational scheme benefits still meets your long-term retirement provision and needs, given that most such schemes offer no alternative income to annuity purchase.

If you have protected pre A-Day tax-free cash of more than 25% within their fund, then any transfer needs careful analysis. The use of block transfers is essential to protect any existing higher protected tax-free cash rights. This will need the transfer of at least one other member of the occupational scheme at the same time. The transfers must go into a scheme that each individual has not been a member for more than 12 months, except if that arrangement only accepted previously contracted out rebates.

If this is not possible, or the occupational scheme is a one-member scheme, then the employer must wind-up the occupational scheme and benefits must transfer to a section 32 policy to provide the same taxfree cash protection. However, for simplicity, you may want to consolidate other arrangements into the occupational scheme before the wind-up, given that section 32 policies have not historically accepted added transfers once set up.

These changes in legislation will present new opportunities for consolidation of pension rights for future income planning and more effective investment management of your existing pension rights. This change, like so many, require appropriate financial advice and must be reviewed on a case by case basis. This is to help ensure you build a decent retirement income from existing and future pension savings.

I have written this article based on interpretation of the law and HM Revenue & Customs practice as at February 2012. I believe this interpretation to be correct, but cannot guarantee it, Tax Relief and the tax treatment of investment funds may change in the future.
My contact details are :- tel 029 2020 1241, email, twitter welshmoneywiz, linkedin Darren Nathan

Markets Plummet – An Overview

10 May

We have seen markets plummet since the elections over last weekend, down to lows of 2012 as investors took flight from stocks at risk of being dragged down by troubles in the Eurozone. This sell-off  seems to have been triggered, at least in part, by fears that a planned coalition government in Greece will tear-up the austerity deal underpinning the country’s recent €240billion (£190billion) bail-out.

The FTSE 100 Index saw £26 Billion wiped off its value following a further slide of over 100 points. This is a third day running of major sell-offs across most stock markets following concerns over the future of the Eurozone.

Alexis Tsipras, whose Syriza party came a surprise second in Sunday’s poll, is insisting his country’s bailout deal with the EU and IMF is ‘null and void’.

As well as uncertainty over Greece, fears that Spain will need to bail out its banking sector caused that country’s 10-year bond yield to soar again above the ‘unsustainable’ 6% level. This is perilously close to the 7% interest rate on government borrowing that prompted Greece, Portugal and Ireland to seek bailouts.

Financial analysts said the current market turmoil was likely to continue. It appears unlikely that a Greek coalition would be formed considering the rhetoric from the various party leaders, so uncertainty was likely to reign for a while.

‘The worst case scenario for the EU is if Greece leaves the Eurozone and undertakes a disorderly default. It is difficult to see why the country would do this but then again it only takes one angry politician to change history – Greece is staring into the political and financial abyss. Whilst a less likely scenario, if it did happen it could have huge ramifications for the rest of Europe.

A default for Greece looks likely and a departure from the Euro in the next 18 months is expected – this scenario has in excess of 66% outcome expectation – good chance of happening. Greece would not be allowed to walk away from its debts and financial obligations, if it leaves the euro. The likely scenario would be it would be given a greater period of time to repay its debts. The sanctions against Greece, if it attempted to renege on its debts, does not bear thinking about.

These are grave concerns and the ramifications for the Eurozone, global economic prosperity and stock markets are huge.

Investing is about taking best advantage of the market cycle while avoiding the periods of market panic – I am pleased to say, we hold a defensive strategy across all my clients and so we have avoided the worse of the declines and are well placed to benefit from the market opportunities expected to be created by the current market turmoil.

My contact details are :- tel 029 2020 1241, email, twitter welshmoneywiz, linkedin Darren Nathan

Personal Pensions & SIPPs: Managing Your Money

9 May
So it’s fair to say that fixed income products are providing low returns, structures products offer the potential of better returns but it is hit-and-miss. This coupled with the rising cost of living mean pensioners and those approaching or planning for retirement can no longer shield themselves from risk if they want to live out retirement comfortably.
Pressure on your pocket from all sides means the traditional shift towards lower-risk assets during middle-age makes less sense and effective asset allocation is even more crucial. There was a time when during middle-age, as an investor, this was the period when you would be shifting away from risk to protect your capital. The rationale was, you were approached retirement and you needed growth but also needed to protect your capital. Now after four years of low growth, negligible returns on cash savings, the soaring cost of living, stagnant property prices and entirely new costs, such as university tuition fees, unemployed children, children who can’t afford to leave home – mean investors can no longer afford to slacken the pace and protect their capital. Middle-age was a different thing 10 years ago. People were aspiring to the idea of an early retirement – seriously expecting they could retire some time after the age of 55 but now, this is not really feasible for the majority. Those seriously planning for retirement are being hammered from all sides – so they need the returns to make those dreams possible – how can they de-risk?
The risk is, if you move solely into bonds are you just taking on a different type of risk? – all eggs in one basket and no guarantee that you won’t make a loss. The returns on cash savings does not keep up with inflation – so this approach only guarantees a loss in real terms. So, up the risk ladder we head with more volatility, just to sustain your pot in real terms hopefully, never mind grow it.This makes grim reading for off-the-peg pension investors, the majority of who will be in products that are doing exactly the opposite. They are either throttling back their exposure to equities in the traditional manner or ignoring the market and investing with a plan that nothing actually has changed and it will be alright in the end. I wonder if they noticed we had a near collapse of the banking system, free-trade as it was has changed possibly forever, global debt is at levels unrecorded in modern history, we are enforcing structured write-down of debt larger  than seen ever in history, including the periods during and after the Great Wars.For investors who are looking for proactive asset management – a quality personal pension or self invested personal pension (SIPP) may provide the structure and access to funds and assets to suit. Now is the time to think carefully about asset allocation. Admittedly, it’s a tough call and there’s quite a balancing act to perform here. Let’s say, you’ve got about 20 years of savings you don’t want to fritter away, but still have a 15- or 20-year time horizon and the ability to make a real difference to your retirement by taking on extra risk when suitable and also reducing that exposure when not.This is basically the only time that attitude to risk really matters – at all other times it’s pretty much overshadowed by time horizon and other situational factors.

The majority of your exposure should remain in equities but this is dependent on the market cycle, tolerance to risk, plans and aspirations (what return are we trying to achieve?) and chosen strategy – with exposure also to fixed income, property, fixed interest, structured products, alternative strategies and absolute return strategies.



International equities should include emerging markets such as China and India, not just the big developed nations such as the US, UK, Europe and Japan.

Many believe that China will drive stock market growth in the future, and it is tempting to pile into Chinese equities on that basis – but not everybody is convinced.

So if the Chinese miracle is more of a magic trick and the fragile recovery seen this year in UK equities isn’t to be trusted either, what choice does that leave investors who have money to put somewhere? 

A practical approach is necessary. You want to diversify as much as possible to shelter yourself from the extreme volatility we’re seeing. You can access a broad range of superior funds in different asset classes, equities, bonds and alternatives – that’s the beauty of a quality personal pensions and SIPPs.

My contact details are :- tel 029 2020 1241, email, twitter welshmoneywiz, linkedin Darren Nathan

UK’s Final Salary Pension Schemes Further In The Red

9 May

Company/Occupation Pension Schemes fall into two groups – Final Salary and Money Purchase.

Final Salary – pay a defined income at retirement based on a commitment from the company assuming it has the funds and are trading at your time of retirement. The Scheme Trustees do have the ability to change the terms assuming the majority of members do not block the changes.

Money Purchase – an annuity is purchased with your pension fund and the income is dependent on your fund accumulated and annuity rates.

This article relates to UK’s final salary pension schemes, which fell further into the red during April. The collective deficit is now nearly £216.8billion (across 6,432 schemes – an increase in deficit of almost £11billion). This is a massive increase on the deficit of just above £8billion at this time last year (but off the peak of £255billion recorded by the Pension Protection Fund in December 2011).


mature couple in the park


The soaring cost of paying for pensions has been blamed on the Bank of England’s quantitative easing programme (QE). Its £325billion asset buying has depressed the yield or return on government bonds (commonly called Gilts). Final salary pension schemes have to use gilts to provide a guaranteed return in order to meet their promises to scheme members. QE has made funding final salary scheme more expensive.

When comparing your retirement benefits ensure your funds are best placed to offer the best potential to retirement income. With the reduction in the Gilt Yield’s, in some circumstances, the Cash Equivalent Transfer Value has been enhanced to a value to consider a transfer to a personal pension or Section 32 pension regime. Each case must be reviewed on its’ own merits and the specific client and their personal views, goals, needs and aims.

The concept is  – due to the reduced Gilt Yields, the cash value of benefits increase and depending on the time to retirement, the client may see a better retirement income by moving to a personal regime.

This is just a concept and principle, professional advice is required to assess the personal situation. The purpose of this point is to highlight you have options and it may be worth investigating further. This article is for information only, and is not a recommendation and advice.

My contact details are :- tel 029 2020 1241, email, twitter welshmoneywiz, linkedin Darren Nathan



Turmoil Caused by French & Greek Elections

8 May

Investors have seen a further downturn in the stock market rollercoaster ride running up to and over the weekend, as political upheaval in France and Greece cast fresh doubt over the future of the Eurozone.

The Euro sank to a 3-and-a-half year low against the pound and a three-month low against the US dollar before clawing back lost ground.

There was also turmoil on European stock markets. Shares in Greece tumbled nearly 7%, with banks  leading the way, in the wake of the weekend’s elections.

It has been a busy weekend in politics :-

  • the Greek conservative Antonis Samaras now having three days to form a coalition government. He is , faced with EU warnings to keep to the tough terms of the international bailouts but there are renewed fears Athens may default on its debts and leave the Eurozone.
  • Mr Hollande campaigned on a platform of renegotiating the terms of the EU fiscal pact to concentrate more on reviving economic prosperity than simply reducing budget deficits.

There are serious concerns that Europe is facing a fresh economic crisis after France elected Francois Hollande and the Socialist Party, a result that is being held as a rejection of austerity measures imposed amid the Eurozone Crisis. It is expected that he will in effect, tear-up last December’s controversial deal to save the euro from oblivion. It is expected, he will seek talks with the ECB (European Central Bank) and German Chancellor Angela  Merkel to demand further borrowing to boost growth.

The menace to the single currency was compounded when voters in near-bankrupt Greece also rejected plans to impose tough financial discipline.

City analysts said that while stock markets had expected a Hollande win, the results in Paris and Athens could tip the strained Eurozone back into turmoil. This could be good-bye to austerity measures and hello to the threat of financial chaos. The  outcome to the French  election has grabbed all the major headlines.  However Greece’s inconclusive and dangerous election result may be even more significant. Greece is close  to collapse.

The Results :-

  • Mr Hollande defeated Mr Sarkozy by 52% to 48% in only the second time a sitting French President has failed to win a second term
  • Greece’s conservative New Democracy and socialist PASOK parties risked falling short of the 151-seat majority needed to form a coalition government;
  • Financial experts warned that the Euro could collapse within months;
  • British officials admitted that David Cameron made a serious error by ostentatiously backing Mr Sarkozy’s re-election bid.

The new French President has pledged to spend an extra 20 Billion Euros in the years ahead to kickstart the economy and wants to slap a 75% tax rate on those earning more than one million euros a year, or around £850,000.

He says he ‘dislikes the rich’ and has singled out ‘the world of finance’ as his principal enemy. Some analysts have suggested  that this could be the first steps to the start of the break-up of the Euro. It is predicted that the ECB might have to lend more money to banks if there is another stock market ‘wobble’ in response to Francois Hollande’s triumph.

In addition to this, some analysts are reporting that France’s affairs paled beside the impact of the Greek election and persistent fears that Spain will be the next European domino to fall. Greece is close to collapse and Spain is deep in a financial quagmire. There are growing concerns that if matters are not brought under more structured control in the next 18 months, we may very well see a split (or several) in the Eurozone.

My Analysis

The election results have set the backdrop for an extended period of volatility and I expect investors to take time to come to terms with a socialist government in France and renewed uncertainty in Greece. In addition, the borrowing costs in Germany have hit a record low of just over 1.5% (possibly a new ‘flight to safety’), while gilt yields in the UK were 2%. This compares with nearly 23% in Greece, 5.77% in Spain, 5.46% in Italy and 2.8% in France.

While I think that the outcome of the French election was widely anticipated, as with every event in life, until it happens, it is a shock. This as a global event needs to be coupled with the fiscal and political situation in Greece – it is highly uncertain and the Eurozone’s weakest link just got weaker. A Greek eurozone exit is now firmly on the cards.

I am expecting the situation in Greece, with the problems in Europe, in addition especially in Spain and others should put markets in risk-off mode. This is before further data arrives from the global issues in developing economies (especially China), US, Middle East and Africa.

 My contact details are :- tel 029 2020 1241, email, twitter welshomoneywiz, linkedin Darren Nathan

Economic Surprise Or Reality?

8 May

Recently I have been advising  to be cautious as the market has and does appear to be at a major crossroads.  

From a macroeconomic viewpoint, risk assets such as the global stock markets could see further trouble. Fears over the US gross domestic product (GDP) came in lower than expected with further revisions likely in the near future.  Unemployment claims still seem to be a problem and until recently, the media failed to report it appropriately.

Additionally, there are two other macroeconomic data points which need to be mentioned. 

  1. The Citigroup Economic Surprise Index (produced by Morgan Stanley) has moved below zero and is showing a negative reading.  This index is generally a leading indicator regarding equity prices and the recent decline is problematic for the bullish case.
  2. The fundamental data has started to significantly skew towards the downside, which is likely a result of the economic and fiscal problems in the Eurozone and potentially in China. 

I believe that the next few weeks are going to be critical and the markets are placed ready for consolidation while traders await more economic data.  Fundamental data indicates that a slow down may be beginning, which may lead to a deeper correction. However, the longer term picture for equities is quite murky based on the economic data points we are seeing paired with additional concerns stemming from the European sovereign debt crisis. 

Right now I would urge readers to be cautious regardless of which direction they favour. Although, opportunity comes from the volatility created in the market and benefiting from the changing directions in the cycle can lead to profit.

Remember be cautious but not too cautious and pick your strategy carefully.

Personally, this period of volatility has been a great opportunity for profits and I believe we are on the cusp of a very profitable section of the cycle but appropriate investment strategy and portfolio structure is essential.

My points of contact are :- tel 029 2020 1241, email, twitter welshmoneywiz, linkedin Darren Nathan