Sam orgill of ProACT Partnership looks at the ups and downs of investors in the current client.

ProACT professional advisers specialise on organising money in tax efficient ways. But you still make investment decisions behind this.  Who you use as your investment adviser can have a great impact on returns. The type of investment you use can make a difference too.

Many people see Banks as a safe haven but the bank is only as good as its management controls. This year has seen Major Banks in the UK and US effectively go bust - Bearn Stearns & Northern Rock. Only desperate government and industry intervention stopped investors losing everything.

Bearn Stearns was in effect given away to a rival free meaning shareholders were wiped out overnight. On another day it could have been the depositors.

Which is why we saw cues of investors at Northern Rock scrambling to withdraw £2billion in a week fearing the bank would go bust.  They realised that if the bank went bust they would only get back around £35,000 per person. Instead the UK government stepped in with £20bn of funding to keep the shop open and ended up nationalising the bank.  Now the shares are worthless.

The other UK banks of course wanted their share of handouts to help them out resulting in over £100bn extra 'soft finace' has been provided by the the UK government to repair their balance sheets. Banks like RBS have still had to make rights issues to shareholders to demand more money to prop up ailing balance sheets.

The lesson to learn is there is only one pot of cash.  For every winner there is a loser; a buy a seller; a depositor a shareholder; a shareholder an option trader; the prudent the spendthrift. The governments around the world have again ( after the early and late 90's financial crisis) bailed out the spendthrift bankers and their borrowers who piled into investment bubbles in world overseas property in the flawed belief that property is always a safe investment that always goes up in value.

All investments asset types - deposits, property, shares, bonds - have their cycles over time, returns can go down as well as up.  property investment in the UK is driven by tax concessions that create a flawed market and distort the market.

Where tax concessions on property don't exist the property price fluctuates much more up and down. Gordon Brown in the UK has introduced two tax increases on UK property in the last 3 three years - dressed up but resulting in capital gains tax increases to property funds and property investors. Result overseas property is a less attractive investments and investors move out of the market weakening price.

Given the UK government is also buying up new property stock in the UK, to prop up prices, and will then rent them out they will in effect hold prices today but reduce returns for buy to let investors weakening prices and returns in the medium term. Like the spendthrift living off credit, the UK government has deferred the day of reckoning, inflating the economy short term ( to win an election?) but is it sustainable?

It is arguable that the global economic management by governments of the last 25 years is not sustainable.  It has led to an explosion of overseas property ownership, property inflation but also of indebtedness to individuals and governments.  Can they keep bailing out the spendthrift at the expense of the prudent or will one day economic forces force an overdue correction? in the 30's they called it a depression, in the 40's a world war.

On a more positive note. Whatever the environment you can make money.  One man's loss is another gain.  So the general rules of investment stand: chose your manager's wisely, review regularly, adjust your holdings with market conditions, and above all hold a balanced spread of property, deposits, shares and bonds.

ProACT offer free reviews and professional advice to expats tax and investment overseas.

Sam Orgill

www.proactpartnership.com

Here is a footnote of recent news items from reuters:

Bear Stearns' Cayne expected to attend merger vote

James Cayne, who as chief executive and chairman of Bear Stearns Cos presided over the investment bank's demise, will attend the meeting Thursday as shareholders vote on JPMorgan Chase & Co's $10-a-share takeover offer, a bank spokesman said.

There had been speculation that Cayne, whose hands-off leadership has been cited as an important factor in Bear's mishandling of the credit crunch, would skip the meeting and avoid confronting shareholders and employees wiped out by the bank's plunge.

With the special meeting scheduled to begin at 10 a.m. EDT in New York, spokesman Russell Sherman said: "We believe he will attend."

The meeting is open only to stockholders who hold shares in their own name, spokeswoman Elizabeth Ventura said.

Reuters

 Man Group profit surges 60%

Man Group, the world's biggest listed hedge fund company, posted a 60% rise in annual profit on Thursday, riding turbulent financial markets to show strong growth in funds under management which fuelled record management fees.

Chief Executive Peter Clarke told Reuters a key part of the firm's strong results stemmed from the performance of its AHL futures business, which, with no exposure to equities, proved particularly successful during the intense volatility in stock markets over the past nine months.

"Diversification and low correlation is a key to surviving these markets," Clarke said.

Man's conservative product range with low leverage had also seen it attract funds as fears intensify over the gearing of other hedge funds at a time when the credit crisis bites harder.

Reuters

 

Investors boost stocks to 2008 high: Reuters poll

Leading global investors lifted their stock holdings to the highest level this year in May but remained cautious in the face of fragile global growth and higher inflation.

Reuters surveys of 44 investment companies in the United States, continental Europe, Japan and Britain showed greater emphasis on equities but holdings remaining below the long-term average and levels at the end of 2007.

Over all, the average stock allocation in a mixed portfolio in May was 59.5%, up from 59.1% in April. The long-term average is 60.3%.

Investors trimmed bonds to 31.2% from 31.3%. They kept cash levels at an above average 5.4%, a sign of continuing caution. The remaining investments were in alternatives such as property, commodities and hedge funds.

Global equity markets have recovered a good chunk of their credit crisis-related losses since mid-March when the U.S. Federal Reserve came to the rescue of ailing investment bank Bear Stearns.

Global stocks as measured by MSCI have risen about 11.5% since mid-March, although they remain about 10% below their all-time high last November.

But with the recovery from financial concerns have come new worries about slowing economic growth and rising inflation.

"We are cautious because of conflicting themes -- inflation, stagflation, bubbles -- but confident on the mid-term normalization," said Patrick de Fraguier, deputy head of the strategy at Credit Agricole Asset Management.

Reuters

Reuters