Investing: Greece is the word

Solomons-financial-advisor-guest-blogger-Jim-Parker

Greece is the Word

The world’s markets and media financial pages have been consumed by a single issue in recent weeks—the stand-off between debt-laden Greece and its international lenders over the conditions of any further bailout. For investors everywhere, both of the large institutional kind and individual participants, the story has been fast-paced and difficult to keep up with. More importantly, the speculation about possible outcomes has been intense.

Of course, no-one knows the eventual outcome or whether there will even be a definitive conclusion. After all, this is a story that has been percolating now for six years, since Greece’s credit rating was downgraded by three leading agencies amid fears the government would default on its debt.

Since then, the Greek situation has faded in and out of public attention as rescue packages came and went and as widespread social and political unrest gripped a nation known as the birthplace of democracy.

But there are a few points to keep in mind. Despite the blanket media coverage of Greece, this is a tiny economy, ranking 51st in the world by GDP in purchasing power parity terms (which takes into account the relative cost of local goods).

On this measure, Greece is a smaller economy than Qatar, Peru or Kazakhstan, none of which currently feature prominently in world news pages. Its economy is about half the size of Ohio in the USA or New South Wales in Australia and about a tenth of the size of the UK. Even within Europe, it is tiny, representing only about 2% of the GDP of the 19-nation Euro Zone.

Size is everything

As a proportion of global share markets, Greece is also a minnow. As of early July 2015, it represented about 0.32% of the MSCI Emerging Markets index and just 0.03% of the MSCI All Country World Index.

And while its total debt is large in nominal terms and relative to its GDP at about 180%, this still represents only about a quarter of 1% of world debt markets.

Of course, what worries investors is not so much Greece itself but the wider ramifications of the debt crisis for its European bank lenders, for the future of the single European currency and for the global financial system.

Yet, many of these concerns are already reflected in market prices, such as in Greek government bonds, the spreads of peripheral Euro Zone bonds, regional equity markets and the single European currency itself.

While no-one knows what will happen next, we can look at measures of market volatility as a rough guide to collective expectations. A commonly cited measure is the Chicago Board Options Exchange’s volatility index, sometimes known as the ‘fear’ index. This has recently spiked to around 18 from 12 in mid-June. But keep in mind the index was up around 80 during the peak of the financial crisis in 2008.

Of course, the human misery and dislocation suffered by the Greek people through this crisis should not be downplayed, neither should the financial risks. But from an investment perspective, there is still little individual investors can do beyond the usual prescription.

Perpective

That prescription is to remain disciplined and broadly diversified across countries and asset classes and to be mindful that markets accommodate new information instantaneously. So the risk in changing one’s portfolio in response to fast-breaking news is that you end up acting on events that are already built into security prices.

In summary, the events in Greece are clearly worrisome, but Greece is a very small economy and a tiny proportion of the global markets. Events are moving quickly and prices are adjusting as news breaks and investor expectations adjust.

For the individual investor, the best approach remains diversifying across many countries and asset classes, remaining focused on your own goals and, most of all, listening to your chosen advisor, who understands your situation best.

Jim Parker

Vice President, Dimensional

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Investing: Greece is the wordDominic2023-12-01T12:20:12+00:00

Financial Scams – Be Warned

Solomons-financial-advisor-wimbledon-blogger

Financial Scams – Be Warned

Believe it or not July 2015 is financial scam month…. given all that is going on in relation to Greece, the ECB, IMF and European Union….not to mention FIFA, perhaps the timing is perfect. Anyway, there is a whole month being dedicated to warning you about financial scams. Sadly there are a lot.

Let me be very plain. A scam works because you are caught off-guard. It is not only the “foolish” that get scammed. Anyone is a potential target. As with most deceptive crime, emphasis is placed on appearing to help you, to warn you of impending problems and to then offer what seems like a logical or sensible solution – such as withdrawing all your money from your “compromised account”. One of the most despicable crimes is to then involve you in the entrapment of the fraudster…. when actually you are simply at a deeper level of the scam.

Your telephone number is a bit like a front door key. You answer the phone, the line is open. Invariably the fraudster passes themselves off as a Bank representative or a large well-known shop and they report that your card appears to have been compromised. If they are pretending to be your Bank, it is unlikely that they reveal which “Bank” they are calling from, simply allowing your mind to fill in the gaps. If they pretend to call from a shop, well frankly you aren’t likely to be that suspicious as you are being helped and advised that fraud was committed on your card in their shop.

Open Line

Your guard is down, because you think you are being helped, it doesn’t occur to you to ask the caller to confirm YOUR name or your bank account number. The caller with mind distracted asks you to check your card… the details, is there a number on the back to call the bank? yes… ok, call them. Goodbye. But actually the fraudster is still on the open line – even if you have hung up, the line is open (a problem that telecom companies have failed to address properly). You call back, but are essentially on the same call… answered by a colleague of the fraudster or even the same one, who then simply harvests your personal information to use… name, address, account information etc.

Another scam involves a fraudster posing a police officer, who suggests that they want to entrap the criminal. S/he suggests you withdraw as much as you can from your account and send it to them for assessment or tagging, perhaps sending a “secure” delivery car to your home to collect it from you. This is a scam, you won’t see the money ever again.

I know that these things seem “obvious” but in the heat of the moment, being caught off-guard and thinking you are being helped and could also help catch the fraudster, you are simply the next victim. Here is a link to a video from the BBC about this.

What you can do

Firstly if someone calls you offering to solve a problem with your banking or IT , challenge them with the sort of questions that your Bank asks you when you phone them…. but go full hog. Do not give them your details but ask them to tell you your details (which they are highly unlikely to have). Go further by asking them to confirm the last 5 payments that you made, the amounts, dates and sources. The fraudster will quickly give up and hang up.

I have had a fraud call centre call me warning that my computers at home had a virus. I knew this was bogus, but quickly appreciated how easy it is to be duped. Normally in those circumstances they ask you to download something to your computer… which is essentially a trojan horse, tracking your banking, which of course can lie dormant for some time, so you forget all about the call and think you were helped by someone pretending to be from BT or whoever.

The 2008 film The Brothers Bloom is well worth watching to remind yourself at how skillful confidence tricksters can be and how little regard they have for the “relationships” that they create.

Dominic Thomas
Solomons IFA

Financial Scams – Be WarnedDominic2023-12-01T12:20:14+00:00

Investing: Greece

Solomons-financial-advisor-guest-blogger-SW

The Greferendum

We’ll know more early next week when the result of this weekend’s Greferendum is known (assuming that is, that the referendum is carried through successfully; nothing is certain). Actually, the wording of the referendum is a little, erm, tame…

‘Should the plan of the agreement be accepted, which was submitted by the European Commission, the European Central Bank, the International Monetary Fund, in the Eurogroup of 25.6.2015, and comprises two parts which constitute their unified proposal? The first document is entitled Reforms For The Completion Of The Current Program And Beyond and the second Preliminary Debt Sustainability Analysis’.

I had expected a more direct question about euro membership. I don’t doubt that that particular question will be addressed soon but, for now, the choice is simply ‘yes’ the deal that has been offered by the troika should be accepted or ‘no’ it should not be accepted.

If a ‘yes’ vote is forthcoming I see three possibilities…

A fourth election in four years is set in motion. The current government is campaigning for a ‘no’, so a ‘yes’ vote probably undermines their legitimacy
the current government leads new negotiations and, with further concessions, secures an interim agreement as a stepping stone to the next bailout proper
the current government leads new negotiations which fail to secure an agreement; sparking another referendum (addressing euro membership much more directly) or, perhaps more likely, another general election

If, on the other hand, a ‘no’ vote wins I see two possibilities…

The current government leads new negotiations and, with no further concessions, secures an interim agreement as a stepping stone to the next bailout proper
The current government leads new negotiations which fail to secure an agreement; sparking another referendum (addressing euro membership much more directly) or, perhaps more likely, another general election.

Ultimately there’s the possibility of a Grexit either way. Clearly though, a Grexit is likely to happen much more quickly if the ‘no’ vote wins. For what it’s worth, I still think a voluntary Grexit is unlikely until the issue of euro-membership is directly addressed with the electorate. An involuntary Grexit – an expulsion from the euro-group – is the more likely scenario.

Super Mario (Draghi)

I’m not dismissive of the ‘contagion’ hypothesis. There is a real risk that discontent spreads from Greece to Portugal, Spain and Italy. And, if a crisis in the Greek mould makes it as far as Spain, it would almost certainly spell disaster. But before that happens I think we will see the European Central Bank (ECB) flex its muscles.

Remember, in July 2012, when Mario Draghi, president of the ECB, said ‘within our mandate, the ECB is ready to do whatever it takes to preserve the euro… [and] believe me, it will be enough’. His statement had an incredible effect on bond yields in the euro-zone. Indeed, that statement alone was enough to limit the euro crisis and it prepared the ground for the nascent recovery we are seeing today.

Back then, the ECB was a central bank heavily constrained by an uncertain mandate. Now, senior court rulings on the legality of some of the ECB’s proposed measures (which had been subject to heavy legal scrutiny in the last three years or so) have defined and broadened the ECB’s mandate. In short, the ECB has considerably more power today than it did in 2012.

I am convinced that the ECB will indeed preserve the euro. I’m certainly not betting against it.

Implications for the stock market

Just to be clear, I’m still in accord with JP Morgan’s Stephanie Flanders on this one…

‘The key takeaway for investors is that the Greek crisis does not pose an existential threat to either the euro system or to Europe’s financial system. Ultimately we do not believe that Greece alone will be enough to put the European recovery into reverse, or that it will prevent a gradual improvement in European corporate earnings. But there is still plenty of scope for nasty surprises and renewed volatility if the Greek situation continues to deteriorate.’ (Source: JPM Market Insights, 19 June 2015).

And at the risk of repeating myself…

Back in 2011, when the euro crisis was at its peak, a Greek default would have been a catastrophe for the euro-zone. It would have spelt disaster for Europe’s banking system and various stock markets around the world would have plummeted. The same is probably not true today; a Greek default would not be a disaster either for the EU, the Eurozone or the stock market (in the long-run at least).

Of course, there is a great deal of complacency. Far too many managers and commentators are dismissive of a potential default; its eventuality would come as a shock to some and the stock market would react sharply while that complacency is washed away.

But does a Greek exit fundamentally alter the long-term potential for listed companies on the continent? How would such a happenstance irreversibly damage the likes of Daimler, Siemens, Louis Vuitton, Total, Airbus, Unilever or Heineken?

In conclusion

Investors should hold risky assets only in the proportions that they are willing and able to hold for the duration of a significant downturn. I know that is easier said than done when interest rates are as low as they are. Investors have a seemingly irresistible urge to ‘reach for yield’. But there is one thing that destroys wealth much more effectively than choosing the wrong fund here or there; investors that blindly carry risk almost always sell out at the first sign of trouble (effectively they ‘buy high and sell low’).

Steve Williams

Investing: GreeceDominic2023-12-01T12:40:13+00:00

Investing and the unfolding Greek tragedy

It is undeniable that the Greeks are facing an enormous decision of whether to stick or twist. The size of the Greek economy is not terribly significant on a global scale, but it is certainly signficant to those working within it – and of course it is smaller this week than it was last week, however the markets are reacting, arguably over-reacting in typical fashion when uncertainty is rife. The real concern is not really Greece, but other EU States that may be minded to opt for a similar take it or leave it approach to their economic obligations.

I think it has been well documented that the Greek tax system has been painfully inadequate over the years and the recent austerity measures have been punitive. There is a degree to which we might say that bad planning has resulted in bad results, or more colloquially – the free ride is over. However, before we get too sanctimonious, the UK also spends more than it earns and of course this isn’t sustainable in the longer-term.

Financial Planning building block – a budget

To budget seems to be a term last used as a verb rather than an idea “post-war”. The Government here has some difficult decisions and of course they are contentious, earn more (raise taxes) or spend less (cut services) seems to be the only thought processes that politicians are capable of. I am left to wonder if this binary approach to life that is taken by most Governments is really the only viable option. At its heart, people get forgotten. On the one hand more money (lower taxes) is very much like a Trojan horse – at least until we can afford to have tax cuts, equally a State that spends without apparent regard for the future, can lull us into feeling that everything is “ok”…. but ultimately the merry-go-round comes to a stop. I know this isn’t easy, who likes paying more tax?

Paying the Price…or the ferryman

I’m reminded of a Volkswagen advert that is currently around – “You Pay For What You Get”. Perhaps you know it – the guy that buys a cheaper parachute, or climbing rope, or shark cage holiday experience. Some decisions have possible life threatening consequences. We all need to make good decisions, the best we can with what we can afford. It’s unfortunate that this is invariably true in life, even love has a cost. Paris and the Trojans ultimately paid for kidnapping Helen, princess of Sparta (life lesson – don’t mess with the Spartans).

I looked back on a piece I wrote nearly 3 years ago (17 August 2012) called summer holidays come to an end. In which I warned of the problems of continued funding of nations that cannot afford the debt. We need to find alternatives.

Don’t kill the messenger (Tigranes)

Sadly, your investment will be worth less this week than it was last, due to the market valuations at present. Whilst these are unusual times, market uncertainty is decidedly usual (normal) and the key thing to remember is that investments are established for a life-long approach not the next week. Yes there is bad news (when isn’t there?) but recovery will occur…. it’s just a case of when, which is of course no small matter and something that I am keeping under review. I feel very sorry for the Greeks who are experiencing a pain that we would do well to avoid.

Here’s a VW advert that I hadn’t seen.

Dominic Thomas
Solomons IFA

Investing and the unfolding Greek tragedyDominic2023-12-01T12:40:12+00:00

Howzat?

James Anderson recently became England’s most successful bowler as he took his as he took his 384th wicket, that belonging to Denesh Ramdin and overtaking Ian Botham in the process. This is of course an incredible achievement in International cricket – congratulations Mr Anderson. So I was surprised to see an item on the BBC sports website that attempted to work out who really was/is the best bowler England have ever had.

Sport as you will know has become increasingly dominated by statistics – attempts on target, completed passes, distance run, speed of delivery the list is very long and naturally varies from sport to sport. When winning any sport tournament, many rather dull teams/individuals have argued that its not the manner of the victory, just that there was a victory. I cannot help but think of the time Greece won the 2004 European Football championship (sorry Greece)… or for that matter many Champions League finals, where one team essentially set up camp in their own penalty area hoping to counter attack and steal a victory.

Cricket is not new to adopting statisitical analysis – arguably starting the statistical obsession with John Wisden’s annual almanac started in 1864. So anyone wishing to pour over cricket statistics has had plenty of opportunity to do so. Anyway the BBC asked its pundits to assess England’s top 10 bowlers and ascribe a value to the wicket taken. In short a batsman that averages 50 runs is worth more than one that averages 5. Recompiling the data provides a different twist with Matthew Hoggard topping the list (248 wickets). Whilst this is “all very interesting” sport, like life cannot be metered into a nice, neat formula. There is always a context, which even with a lengthy span of statistical data is flawed. For example – the quality of the opposition is a key ingredient, the prevailing rules, TV replays and so on, let alone the context of the pressure of the moment. Statistics are cold, unrepentent and have no context other than a time period.

Investment returns and the charts that you see plastered on advertising boards or in any media are similarly misleading. Most investors probably know that this is the case, but few behave as if it is. Most investors are tempted to invest once returns are good, most sell when they have been poor, on average chasing returns, receiving below-average market returns at above market cost. Sadly the equivalent best investment “gongs” or awards also measure historic data (there is no other) and the context of this is against peers. Who is the best fund manager? well it rather depends on which sector, what timeframe, what measure of risk is used, and what luck was involved. In short, its an impossible task, yet many play the game and attempt to quantify who is “best”.

In practice, the only investment returns that matter are the ones that you actually get. Cricket, motor racing, football, tennis, golf…are all enjoyable escapes, but again the only best that any sportsman/woman can be is their own best, in the context of their sport, time, team and luck. I have nothing against awards for best this or that, (they can be a lot of fun – especially if you win one or two) but as ever, context is everything. I can only be the best financial planner that I can be, constantly striving to improve and be better than I was last year, last month, last week… and of course our service (like most) is not for everyone, but for those that want and need it… well we try to make it the best possible.

Dominic Thomas

Howzat?Dominic2023-12-01T12:40:04+00:00

Retail Therapy

Most of us have probably at some point dabbled in a bit of retail therapy, bought something nice to make us feel a bit better. Invariably the feeling is all too fleeting, which most of us observe and move on, however some, much like addicts, seek out another high or buzz, returning to the shops. Unfortunately most western economies are based upon this reality to a greater or lessor extent.

However, whatever your economy is based on, the cold reality of life will eventually be something that cannot be avoided. You may have seen the rather sad tale of Louise Gray, a widow of the 7/7 London bombings. Mrs Gray received a substantial sum from the Criminal Injuries Compensation Authority and awards were also made to her son and daughter, which were placed into Trust (presumably a Bare Trust) as the son gained access to the funds at 18. However, he simply took funds out and entrusted them to his mother, who it seems had spent her funds and then spent his. Sadly this resulted in her son Adam taking his mother to court to return the money to him, which she couldn’t so was recently sentenced to imprisonment for 2 years and 8 months.

Of course, I know nothing of the detail of this case, but I imagine that Mrs Gray has found it very hard to adjust to life following the loss of her husband and rather than seeking professional help and support sought comfort in things. Of course, she may have sought and even found some counselling, but even if she did, her behaviour suggests that she was avoiding confronting some very harsh realities, which I imagine would be a difficult process for most people.

It would be easy to dismiss her actions as foolish, yet it is plain that it is far easier to avoid reality than face it. The Greek election vote is something of a vote for denial of reality, but then, aren’t our own politicians in a rush to make promises that in reality delay the unyielding inevitability of collective need to get our finances in order? Whether its tax cuts, tax breaks, spending increases, decreases… it all boils down to some basic sums… you cannot continue to spend what you don’t have, without a day of reckoning. Talk of finally paying off the FIRST World War debt (some £1.9billion is still owed) is somewhat flawed… the debt hasn’t been repaid, its been repackaged… much like switching a credit card balance to a cheaper one isn’t clearing debt. Perhaps you thought that the country would have paid for WW1 by now, some 100 years later…war is expensive in every possible sense! How much better off our Nation would be if we had found the courage to repay debt rather than simply maintain it. The truth can be pretty painful can’t it…..

Dominic Thomas

Retail TherapyDominic2023-12-01T12:39:55+00:00