Published: Wednesday, 25th August, 2010 5:00pm
Summer ends as double dip fears loom
Jill Kerby.
Pic by==: 97
The long summer holiday season is nearly over and the new year, as dictated by children returning to school, starts next week. It also heralds the third anniversary of the banking and fiscal crisis that began at the end of 2007 when British mortgage bank Northern Rock collapsed, sparking the first run in a UK bank in 150 years.
Politicians and central bankers (CBs) are correct in saying that their intervention back in 2008/09 prevented the immediate melt-down of the world banking system. But where they are dead wrong is in their view that they reversed the recession and an economic recovery is now under way. In reality, they only stuck their collective fingers into the cracking dyke, all the while pouring the equivalent of an estimated 13 trillion dollars of new debt and borrowings to bail out insolvent banks and industries and add to the already explosive volume of hundreds of trillions worth of global debt. The day of reckoning has only been postponed; all the while more capital, more companies and jobs disappear.
Here in Ireland, as the foreign debt piles up, unemployment keeps rising and asset prices (like property) keep falling. We are in the eye of the storm. Our debts are simply too big to repay and the great recession continues, but the pace of is quickening again as the efforts to stop the recession in the USA and Europe are also being seen not to have been particularly successful. The US bond market is terribly overheated and the danger of a sovereign debt default in Greece in particular has grown as its economy (like our own, and Spain's) continues to weaken under a growing burden of unemployment, higher taxation and lower spending.
Clearly, some people want to believe that our government and the Americans and the European bankers have everything under control. Good luck to them.
I think having your own Plan B at the ready is a better idea, just in case:
- Don't add to your debt (even if the government is doing so, against your wishes). Make sure you have your savings in a secure bank that pays the best rate of interest possible. Don't leave more than €100,000 with any single institution.
- If you are not comfortable leaving all your money in an Irish bank, shift some to a non-Irish one or open a savings account in a strong eurozone country (like Germany). You can also open a non-euro account in your Irish bank. If you take your euro offshore, you must report any account to the Revenue. Many advisors now recommend the purchase of German government bonds (even index-linked ones).
- If you are worried about the longer term viability of the euro or other paper currencies, consider shifting a portion of your paper wealth (if you have no other assets) into real, tangible money or other assets.
These include real money like gold and silver; oil shares, arable land and even shares in some 'global dominator' companies. These can all go up and down in value but are not likely to disappear altogether - unlike paper currency. World dominator shares are attractive because of the mostly reliable stream of dividends that they pay.
- Consider lending some money that would otherwise earn poor rates of interest at your bank to family or friends who cannot otherwise cannot raise a loan for a business or home, but who (so far as you know) are a good risk and will repay you this money.
- Younger people, who have time on their side to make up market falls, should consider investing some of their savings into a diverse selection of emerging and developing economy companies or funds as well as top value world dominator shares, index linked bonds, food commodities, water, oil and alternative energy markets, especially geothermal and nuclear energy.
There are many ways to invest. You can buy pre-packaged investment funds from life assurance companies like Aviva and others, but the initial costs can be high in addition to annual management fees. You can buy shares or ETFs, pooled funds that sell as a single share on a stock exchange, but you need to be prepared to do the research yourself in order to keep the costs down. (The funds also charge similar or lower annual fees, especially in the case of ETFs.)
The best way to learn about ETFs, is to take a course. Rory Gillen, the founder of investRcentre.com is holding a two and a half hour ETF course in Galway on September 28 and in Monaghan on September 29. (I took his day-long investing course last year and found it helpful.) It covers all aspect of ETF investing and will take you through the upsides - low cost and accessible and downsides - how difficult it can be to pick a winner as the market continues to expand.
The cost is €147 for existing members and €197 for non-members (01-2871400 to book).
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