Merryn Somerset-Webb

Friday

29 Jul 2016
Merryn Somerset-Webb

A warning from the small print on negative interest rates

Mostly I wouldn’t suggest that too many of us pay any attention at all to letters noting minor looking changes to the terms of conditions of corporate deposit accounts at Natwest and RBS (which owns Natwest). Not so this week. This week we all need to pay a lot of attention. The letter in question notes that 'global interest rates remain at very low levels' – something I think we all know. But goes on to say that 'this could result in us charging interest on credit balances' in the event that the UK base rate falls below zero. Yes, instead of paying its business customers interest on their money, the bank is warning them that it may soon be charging them interest on their money. This wouldn’t be a global first of course: the ECB has a negative interest rate of 0.

A warning from the small print on negative interest rates

Thursday

11 Feb 2016
Merryn Somerset-Webb

Investment: Buy to lose

Take a quick look at the UK buy-to-let market and you might find it tough to understand exactly what it is that makes it so very popular. Dealing with tenants is difficult and boring. House prices have a horrible tendency to go down as well as up (Londoners — ask anyone living in the north of England about this). And rents have long been so low relative to prices that getting a worthwhile net yield is all but impossible after costs. Given this, you might wonder, why on earth would 14.5 per cent of all mortgage lending in the UK in the third quarter of last year have been to buy-to-let investors? Good question. The answer (as is the case with everything to do with modern money) is that it is all about leverage. The idea in the mind of the average amateur buy-to-let investor — as I understand it from 15 years of reader emails on the matter — is that as long as you are cash-flow neutral each year (i.

Investment: Buy to lose

Thursday

12 Feb 2015
Merryn Somerset-Webb

Worry about the eurozone crisis if you like. But profit, too

If you want something to worry about, you need only cast your eye across the channel to find yourself spoilt for choice. There is the background noise of massive unrepayable sovereign debt levels. There’s huge youth unemployment. There are angry minority political parties — note the rise of Spain’s anti-austerity party Podemos. There is the battle between those who think the eurozone can survive as just a monetary union and those who know that it will only survive if it gives into political union. There is the threat of deflation (nice when you aren’t in debt, crippling when you are). There is the new phenomenon of negative yields, whereby desperate investors are prepared to pay more for sovereign bonds (and the occasional corporate bond) than they know it is possible to get back if they hold the bond to maturity.

Worry about the eurozone crisis if you like. But profit, too

Thursday

11 Sep 2014
Merryn Somerset-Webb

What it means for your savings if Scotland votes yes

[audioplayer src="http://traffic.libsyn.com/spectator/TheViewFrom22_11_Sept_2014_v4.mp3" title="Fraser Nelson, Tom Holland and Leah McLaren discuss how we can still save the Union" startat=50] Listen [/audioplayer]I bet that until a few days ago you thought the referendum in Scotland was a mildly amusing sideshow. Perhaps you still do. Perhaps you are convinced that the ‘silent majority’ that Better Together are so sure will step up to the plate at the last minute really exist. Perhaps you think that the reasons many people are giving for voting ‘yes’ are so vague that voters will change their mind on the day. Or even if they don’t you might think it is all an irrelevance. Perhaps you know about the Faroe Islanders’ referendum for independence from Denmark back in 1946 and assume something similar will happen here on a ‘yes’ vote.

What it means for your savings if Scotland votes yes

Thursday

22 May 2014
Merryn Somerset-Webb

They made me sit an exam on giving financial advice. And I’m glad

There was a time, not that long ago, when financial advisers as we know them today didn’t really exist. Pension and tax advice came from accountants. If you bought shares you bought them via a stockbroker (who gave you advice along the way). Unit trusts came directly — you responded to advertisements or perhaps got your accountant to do it for you. Occasionally you used an insurance broker. And that was that. It wasn’t particularly complicated and as a result no one (your accountant aside) was officially qualified to do anything. Brokers and dealers didn’t take exams to prove their proficiency and no one really thought they should. In the June 1963 edition of the Stock Exchange Journal, a Mr H.H. West in a marvellous piece on the idea of compulsory qualifications stated that ‘if it could be proven beyond all reasonable doubt that the introduction of examinations would be in the interests of everybody concerned and the practical and administrative difficulties could be overcome’ then no obstacles should be put in its way.

They made me sit an exam on giving financial advice. And I’m glad

Thursday

31 Oct 2013
Merryn Somerset-Webb

How to make money from the Scottish referendum

The best time to buy an asset is when no one else can stomach it. Great fortunes are made in uncertainty. The self-made rich aren’t the ones who hung around on the edge of an iffy situation thinking about the possible disasters. They’re the ones who calculated the odds and bought before anyone else was sure of the answers. So where is there uncertainty in the UK today? Most English people are utterly uninterested in the prospect of Scottish independence — or in Scotland generally. But if they were actually to look up north they’d see pretty serious turmoil. It is less than a year until every resident of Scotland gets to vote on whether they want to live with the devil they know or the devil they don’t. Will they stay part of our 307-year-old union, or vote to go it alone? This surely makes a big difference to whether you invest in Scotland.

How to make money from the Scottish referendum

Thursday

3 Oct 2013
Merryn Somerset-Webb

If only more banks were more like Wonga

I know a lot of people who work in the financial industry. One on one, they are decent and kind. I’d trust them to look after my handbag in the pub while I went to the Ladies. But you know what? I wouldn’t trust many of them to look after my pension or my ISA. In fact I’m pretty damned sure that if I bought a financial product from them, they would devote themselves to slowly stealing my savings. I’m not alone in feeling like this. PressChoice does an annual survey asking journalists how much they agree or disagree with the statement ‘the financial services industry conducts itself in an open and honest way’. In 2008 the majority agreed. This year none agreed strongly and a mere 7 per cent agreed a little (I’m assuming this group is mainly fashion journalists married to hedge-fund managers), while 58 per cent now think the industry is ‘actively closed and dishonest’.

If only more banks were more like Wonga

Thursday

23 May 2013
Merryn Somerset-Webb

George Osborne’s property bubble will lead to disaster

Imagine, if you can bear it, that you are a first-time buyer in the UK. You go to look at a 500-square-foot box masquerading as a two-bedroom flat in an average sort of area masquerading as an up-and-coming part of London. It’s a new build — one you can just about imagine downgrading your lifestyle expectations enough to live in. The problem is that you can’t quite afford it. The good news is that your Chancellor is behind you on this one. With you all the way. George Osborne really wants you to be able to buy a house. So here’s the question. Would you like him to help you do that by interfering with the market to ensure that you are offered a long-term loan you wouldn’t normally have been able to get? Or would you prefer that he didn’t interfere with the market at all, but prices fell to a level, relative to your income, that you could actually afford, and you got yourself a mortgage you could also actually afford on your own merits? I’d go for the latter and I rather imagine most first-time buyers would too.

George Osborne’s property bubble will lead to disaster

Thursday

2 May 2013
Merryn Somerset-Webb

Investment special: How Shinzo Abe has revived Japan

Thank goodness for Shinzo Abe. Back in 2007, I wrote here that ‘over the next two to five years Japan will turn out to be one of the best investments UK-based investors can make’. By the middle of 2012, nearly five years on, that wasn’t looking like much of a prediction. Then prime minister Abe appeared on the scene. Since his election in November the yen has fallen 20 per cent against the dollar and the Japanese stock market has risen not far off 50 per cent. Phew. So what’s so great about Mr Abe? The short answer is that he has promised to do something about the Japanese economy after two decades of slow growth and semi-deflation, and — crucially — everyone believes him. He has what he calls a ‘three arrow’ strategy for change.

Investment special: How Shinzo Abe has revived Japan

Thursday

1 Nov 2012
Merryn Somerset-Webb

Reform at last

A decade ago I wrote here about the way financial advisers are paid. I told you how, instead of giving you a bill, your adviser is allowed to sell you investment products in exchange for a commission from the product provider plus a cut of your assets every year for as long as you continue to hold those products. So if you buy an investment fund from an independent financial adviser (IFA), he will receive a payment up front and then another payment every year,  whether you ever have the good fortune to come across him again or not. All these payments will come out of your money — you just won’t know much about it. Think of it, I said at the time, as like buying a house through a search agent, but instead of just paying him a fee for finding the house, you also pay him another fee equivalent to the costs of his family holiday in Cornwall for every year you live in the house thereafter.

Reform at last

Saturday

17 Mar 2012
Merryn Somerset-Webb

Investment Special: Searching for income

The outcome of last week’s Monetary Policy Committee meeting came as no surprise, but if you’re trying to live off income generated from capital, it was still bloody irritating. Once again, base rate was left at 0.5 per cent, its lowest level since records began in 1694. Once again, it was decided that quantitative easing must continue. So annuity rates will remain at record lows; deposit rates will remain below a level worth anything after inflation and tax; the squeeze on pensioner living standards will continue; and savers will feel forced to move into riskier markets to preserve the purchasing power of their cash. So what can you do? The first thing to note is that you don’t have to be bullied into moving out of cash.

Investment Special: Searching for income

Saturday

15 Oct 2011
Merryn Somerset-Webb

INVESTMENT SPECIAL: The kids can wait

The government wants you to save more. You might think that odd for two reasons. First, because if you are an average person you’re unlikely to have much extra to save; your mortgage payments may be lower than they were, but what the financial crisis has given you with one hand it is ripping away with the other. High inflation is destroying the purchasing power of your net income. Secondly, if you watch the news at all you will know about the paradox of thrift. If we all start saving at once our horribly ill-balanced, consumption-based economy won’t be able to cope: economic growth will continue to collapse and we will all end up worse off. Still, there’s no accounting for the madness of government policy and so it is that from November you will be able to open a Junior Isa (Jisa) for your children (if they don’t already have a child trust fund) and pile whatever pennies you can scrabble out of your purse at the end of every month into it, up to a limit of £3,600 a year.

INVESTMENT SPECIAL: The kids can wait

Saturday

27 Aug 2011
Merryn Somerset-Webb

Any other business | 27 August 2011

The shocks won’t end with the summerThe world’s stock markets have had a ­pretty gruesome August. Listen to most of the financial press and you might think the reasons for this are ­hideously complicated. Not so. It boils down to the simple truth neatly summed up by Tim Price, director of investments at PFP Group: ‘What is unsustainable by ­definition cannot indefinitely last.’ If there isn’t enough real money around to repay debt, be it Greek, Irish and US sovereign debt or next door’s mortgage, it won’t get paid back. As every day goes by it becomes increasingly obvious to everyone that the West will never be able to generate enough income to service its debts and its welfare promises. It will have to default on its obligations to its creditors or its citizens or both.

Any other business | 27 August 2011

Saturday

12 Feb 2011
Merryn Somerset-Webb

INVESTMENT SPECIAL: Sell the East, buy the West

The end is nigh for the Asian boom – but parts of Europe look perkyAt the beginning of 2010 I was asked to announce my ‘trade of the decade’. Forecasting ten years ahead should be easier than forecasting short-term. But at the time the global economic outlook was more than usually uncertain. That made it tricky. So after a little thought I did what I normally do when stumped. I looked at what everyone else was predicting and went for the diametric opposite. Fund managers and financial advisers were nuts for emerging markets in 2009 and 2010. I could barely see over my desk for research papers extrapolating 10 per cent GDP growth in China forever. At the same time most observers were down on western markets, despite them being much cheaper.

INVESTMENT SPECIAL: Sell the East, buy the West

Monday

14 Dec 2009
Merryn Somerset-Webb

My crystal ball sees disappointment ahead

Merryn Somerset Webb doubts that markets will go on rising — and advises us how not to get poorer in 2010Back in early 2007, an interviewer challenged my stance on the housing market. She pointed out that I had been bearish on the property market for several years but that the market did not seem much interested in my opinion. It wasn’t crashing. And that, she said, suggested that it never would.This is a pretty dimwitted argument. But it is much used when an asset class is rising for reasons connected to something other than its real value — its very rising is somehow used to justify its rise. Property market-watchers will remember that pre-crash, the most the housing bulls would accept was that there might be a ‘period of consolidation’ while incomes somehow — no one explained how — caught up with prices.

Saturday

12 Jul 2008
Merryn Somerset-Webb

Private education

School fees: a luxury you can’t affordThe credit crunch is taking a terrible toll on the middle classes. They’ve started to give up their organic boxes (sales are down 10 per cent at some companies), their foreign holidays (can the new fad for camping really be a choice thing?), their Chelsea tractors, and even their privacy (their second homes are now available as holiday lets). So what’s next? Probably their children’s private education.School-fee inflation is running at well over 6 per cent a year, the average day school costs £3,000 a term, and top schools such as Eton and Wycombe Abbey charge £9,000-plus. Fifty-one schools in the UK charge more than £25,000 a year. That means if you have two children at top schools, you need to find £60,000 out of post-tax income — £100,000-odd pre-tax — just to pay the basic fees.

Saturday

16 Feb 2008
Merryn Somerset-Webb

You wouldn’t buy Britain in this state, so why hold your cash in pounds?

A few minutes reading the Daily Mail and you might think that there wasn’t a person left in Britain with a penny to their name. But it isn’t so. Half the nation may have spent the last five years churning credit cards and overpaying for city-centre new-build flats, but the other half has been busy getting rich. The long bull market, the housing bubble, the City bonus boom and an entrepreneur-friendly culture (yes, really — try starting a business in France) have all combined to make a lot of people a lot of money. The question now is what on earth they should do with it. They can’t buy houses and they don’t really want to put it into the stock market, given its shocking volatility and clear downward trend — and hedge funds have spent the last couple of years proving they’re no safe haven either.

Saturday

3 Nov 2007
Merryn Somerset-Webb

The City’s fascination with farming

Everyone’s an expert on agriculture these days. Talk to anyone in the City: when they’re not boring you with how much copper wire it takes to build a satellite city outside Shanghai and what that means for mining shares, they’re telling you about soy bean yields in Brazil and the rising price of powdered milk. Fascination with food has been brought on by a sudden realisation in financial markets that there’s money to be made in farming. After several decades of stagnation, the prices of pretty much everything edible has started to soar. In Britain the price of wheat is up 90 per cent on last year and the price of barley up 100 per cent, while anyone who bothers to look at their supermarket receipts will have noted that milk, beef and sugar are ticking up in price too.

Saturday

21 Jul 2007
Merryn Somerset-Webb

The price of sex in the City

Morgan Stanley has just hosted its first ‘early access’ event for young women: 75 girls from 15 top schools were taken on a tour of the trading floor (I bet there weren’t many traders off sick that day)Morgan Stanley has just hosted its first ‘early access’ event for young women: 75 girls from 15 top schools were taken on a tour of the trading floor (I bet there weren’t many traders off sick that day) and given ‘networking’ sessions in which they could talk to female staffers. Morgan Stanley says the event was part of its strategy to ‘bring women in’, and it is not alone in this worthy-sounding aim: most big banks now make similar noises. This seems odd. Given how beastly the City tends to be to women, I can’t quite see the point of putting so much effort into hiring them.

Saturday

9 Jun 2007
Merryn Somerset-Webb

Women and money make a perfect match

The City summer party season has begun. I kicked it off with a fifth-anniversary party for Neptune Investment Management last Thursday. I like Neptune: they’ve got good funds and a good business, and offering drinks after hours at the Wallace Collection is clearly a fine way to win fans. But the party had one faintly off-putting aspect: the statue garden where we were gulping champagne was a sea of suits. There were one or two daintily dressed women dotted about but, with only one exception who I recognised, they were PR types or journalists. The fund managers themselves were all men.The same will be true at every money-related party this summer and I see it in every other kind of City event I attend or organise.

Saturday

12 May 2007
Merryn Somerset-Webb

Sell Madrid, buy Berlin

For some years now it has been fashionable for fund managers investing in Europe to consider the entire Eurozone as one great big market divided up not by national boundaries but by industry. They see the choice not as between investing in Spain or in Switzerland but between, say, pharmaceuticals and retail. And when asked if Europe is expensive or cheap they won’t tell you that one country is cheaper than another; they’ll tell you the price-earnings ratio for the zone as a whole. This all sounds very modern and clever but I wonder if it really makes sense. It is becoming increasingly clear to me that they might actually be better to look at investing in Europe the old-fashioned way, country by country.Seen as a whole, Europe looks like a perfectly good place to put your money.

Saturday

31 Mar 2007
Merryn Somerset-Webb

Not so dark continent

In Bond Street tube station an ad catches my eye every morning: ‘140 million people, 9th largest market in the world, 42 billion tonnes of bitumen, 3rd largest movie industry in the world, Africa’s fastest growing telecommunications market. Nigeria ...it’s more than what you think it is.’ The effect is slightly ruined by the grammar of that final slogan, but the message gets across: anyone in the business or investment world who has written Nigeria off as nothing more than a no-hope nation of clever but fraudulent letter-writers is making a mistake. The same could be said of much of the rest of Africa. It’s not hard to find misery: start in Zimbabwe with Robert Mugabe’s 82nd birthday party taking place in a country where average life expectancy is now only 34; move on to the Aids crisis in South Africa, the drought that hit northern Kenya last year, the war in Sudan and the child soldiers of Uganda.

Saturday

24 Feb 2007
Merryn Somerset-Webb

Money really can grow on trees

With the endless talk about private equity these days you could be forgiven for thinking it must be the only sensible investment out there. Not so. In fact some of private equity’s biggest players (think Guy Hands) have recently been putting their money into something much more prosaic — trees.Until a few years ago, British forestry was usually seen as just another way for the market to separate fools from their money: timber prices had been in freefall for years thanks to cheap imports from Scandinavia and Eastern Europe and a fall in domestic processing capacity. They have been recovering slowly (up 13 per cent in the last three years according to the FIM Timber Index) but even now are still only half of their 1996 prices.

Saturday

20 Jan 2007
Merryn Somerset-Webb

A slow dawn but not a false one

For fund managers who specialised in Japan, 2005 was a fantastic year. After more than a decade of dealing with a market in the doldrums they suddenly found themselves in the middle of a boom: stocks were rising fast, gurus around the world were tipping Japan as their favourite market and Japanese-themed hedge funds were springing up everywhere. Money poured in and the managers — who had looked resentfully at the fortunes being made in US and UK markets for many years — started to live the dream: they opened offices in St James and rushed to buy the cars, boats and houses that the City thinks go with making real money. By the end of the year the benchmark index was up around  40 per cent and they were all rolling in cash.

Saturday

25 Nov 2006
Merryn Somerset-Webb

Ignore your conscience: big oil still beats green power

If you are the kind of person who believes the things the City says, you might by now be almost convinced that we don’t really need oil any more.If you are the kind of person who believes the things the City says, you might by now be almost convinced that we don’t really need oil any more. Within seconds of the publication of the Stern report every analyst in town had become an expert on green energy, and investors were being advised to put their money in everything from wind, solar and wave power to fuel cells and biomass electricity plants, all of which were being put about as perfectly viable alternatives to fossil fuels. The problem is that, at present at least, they aren’t.Wind power is famously inefficient.

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