Thursday 15 December 2011

Pitfalls in the Endless Search for Yield

I am with Galbraith: "the only function of economic forecasting is to make astrology look respectable". Still, it can be interesting to listen to people who feel the need to say something. Here's what NS&I have to offer, in my email this morning.

"It’s impossible to predict exactly what will happen to the investment market in 2012 [so far, so good] but there is a way to get a clearer picture of what could be in store. Perspectives - a clear view on your money. We asked a panel of financial advisers ...

Dr Robin Keyte:
'I am a strong supporter of NS&I Index-linked Savings Certificates, which provide excellent tax-free, low-risk returns.’ * "

I wonder what the asterisk is for ... ah - " * not currently on general sale".

Keyte isn't finished, though.

I would also consider Zopa who offer a unique approach to borrowing and lending without the use of banks."

Never heard of Zopa: what do they do ? ... click click click ...

"At Zopa, people who have spare money lend it directly to people who want to borrow. Zopa has plenty of safeguards in place to make lenders' money available only to credit-worthy borrowers, but we also provide lenders with predictions for the bad debt that they should expect."

Strewth !
They predict the default rates ! This is worse than 'prices can go down as well as up' - quick, let's pick a different expert back at NS&I.

Adrian Lowcock:
'the most important thing to do: ignore short-term volatility and not panic when markets are weak' "

Thank you Adrian. And finally, as we make our way to the door, there's a useful link: "Tell us what you think of this article".

Best not, actually.



Bill Quango MP said...

NSI has pulled all its products, bar premium bonds, from their major partner, the post office.

They have even moved their passbook savings,{those old fashioned pay money in over the counter books. Get an updated entry in your journal, no way to access your funds except by posting the passbook to NSI.} 0.2% interest..a poor rate that you can better on a current account; anyway now moved to online and phone only???
{for our customers convenience!! - As in the old days of Natwest when they were turning banks into wine bars - the genuinely used to put up hoardings saying "FOR YOUR CONVENIENCE, THIS BRANCH IS NOW CLOSED."}

How does this work? Its a book specifically for the very old, very ill informed savers and those who want to pay in small amounts once a year for kids b'day money, college funds, etc.
These people can't pay in cash over the phone. Its a cash product, I'm sure.

If they wanted to scrap the product, just scrap it. Don't pretend that old gran has suddenly got all internet savvy and demanded online banking because she wakes up at 4am and has nothing else to do until Cash in the attic comes on.

NSI. The government's chosen method of steering savings and it can't use it because 'competition regulations'? Really? How very weak.

Steven_L said...

No comment on gold then ND? I remember last time it looked like breaking down just before Libya etc.

I sold it and got stopped out in a couple of days. Loads of quality stuff getting sold down on the continent too, yet UK defensives (Vodafone, Glaxo) are staying strong.

What's going on?

Nick Drew said...

yes a strange beast, NS&I

gold? I am just damn' glad I am in physical, because quite plainly the paper stuff is in trouble

hard to keep up with the re-hypothecation stories these days, but no good will come of it

it does have the smell of the Beginning of the End

anyhow, I'll give an end-of-year MTM for what it's worth - I'm trusting it will be conservative, i.e. eventually there will be an identifiable (bankable!) physical premium instead of just the rumoured one

incidentally, a very pertinent comment is just how much gold the EU 26 hold: thanks to Brown, it dwarfs our beggarly stock ... can the gold-backed currency be far away ?

Sebastian Weetabix said...

Gold backed currency... hmm. I do hope not. We dig it out of the ground at vast expense, refine it, and then we bury it again in a vault only this time with an armed guard. It's just not rational.

Nevertheless let's be charitable and assume that all fiat money is completely dead and that there is no longer any trust in the system at all (I don't think we're there yet myself) and we therefore need a currency backed by a commodity to restrain the wild printers of paper money. Why gold? Why not platinum or palladium or rhodium or a basket of these things?

Or how about we just take the power of money creation away from the banks instead, and only allow them to lend out what they have on deposit? It's an equally good way of causing a collapse in the money supply and deflation, which presumably is what the gold bugs want.

andrew said...

I woke up and realised that all those SF stories about money ceasing to be relevant and people basically accruing / spending 'reputation' has come true in a way.

The EUR had a value because it was backed by the Germans and they have a horror of unsound money and we thought all the qurozone would be like that.
Now we realise that that isn't quite so.

The value of a currency reflects the amount of confidence / trust outsiders have in it.

The SFr is trusted as they have all the money already :)

The UK is trusted as we have a very long history of paying up (and inflation but lets not talk about that).

The USD is trusted as there is no choice.

Bit like a share price really - reflects the value of the assets, future prospects and 'brand'

I think we may be leaving the era where a soverign country can default without actual bankruptcy.
If the govt owns land / minerals, I think the creditors think that they should be sold off and the money paid to them - just like a company.

Not surprised the French really hate the way things are going - it is the logic of Anglo - Capitalism

Budgie said...

Well said, SW.

Gold is not a remedy, for inflation or anything else. In a less complex economy and without significant global trade, gold may have reflected the work society could afford to put into its extraction, and therefore been a useful indicator of societal wealth.

However when Spain imported gold, effectively for free, from S America roaring inflation resulted (more gold + same work gdp = inflation).

Gold is just as fiat as paper, as a currency, because what people really want is food, shelter, leisure and self-actualisation. So we are as dependent on people accepting our gold for these things as we are on them accepting paper.

Nick Drew said...

I am not advocating it

just so you know !

Jan said...

There's something to be said for Premium Bonds which are much more exciting than money in a savings account.

Lovely when that envelope from Glasgow plops onto the mat and such excitement when the said envelope is ripped open only to reveal.......a cheque for £25 (not the million £ this time)

It's like the lottery except that you get to keep the stake but for the wins I've had it works out as much the same as a pretty low rate of interest in a savings a/c.

Next time......!?

Anonymous said...

O come on,guys...
Mrs Semper has been in Zopa for a couple of years and I think it has been going for two or three more.

It works well and their guesstimate of default rates is much worse than we have experienced - which is better than the other way. I'd have thought you canny capitalists would have been in on this one. So far we are seeing a decent return. Details are classified.

It is nice to bypass the banks.

Nick Drew said...

semper - thanks: good to have some first-hand input, and I certainly get the concept: arbitrage is a wonderful thing

but good luck with 2012 ...

(a bit like some of the buy-to-let schemes that depend on heavy leverage at ultra-low interest rates, high % rent-collection and low voids ...)