UPDATE: No answer as at 12 July. Are journalists even more arrogant than politicians?
________________________________________________________
Allister Heath at City AM has written a piece in praise of Ronald Reagan and tax cuts. I have emailed him as follows and look forward to his rebuttal:
Dear Mr Heath
Bring back Reagan? You'd have to be amazingly selective about which policies. It was under him and Mrs Thatcher that the reckless acceleration of monetary expansion began, and if you track money supply against GDP you'll see that the response of the latter, though statistically significantly positive, was also significantly less than the increase in the money supply. We got roaring inflation, but this time in the stockmarket and housing, turn and turn about. These two and their successors have led us to the present, tragically debt-laden pass.
We also got, thanks to the cuts in income tax, an enormous increase in inequality, now the subject of much well-informed comment in the USA. We'll be lucky if we don't end up with a Colombia-type society where the rich live in gated compounds (sorry, "communities") and go shopping in armoured cars, though that appears to be trending here.
I don't suppose that either the affable Reagan or the honourable and principled Thatcher, both of them fervent patriots, intended any of this, but their financial naivety was grossly exploited by the money men.
Perhaps you could submit something on how "conservatives", aren't. Or how politicians generally need to be taught far more thoroughly on the E bit of PPE.
Yours faithfully
Rolf Norfolk
INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Tuesday, July 05, 2011
Monday, July 04, 2011
Liberty, subjection and destruction
Happy Fourth of July, America!
The same date is also the anniversary of the battle of Mantinea (362 BC), in which the Theban leader Epaminondas inflicted his second (after Leuctra) decisive defeat on the Spartans. A victory, one could have hoped at the time, for the democratic city-states of Attica and Boeotia.
Previously, warlike Sparta had overcome Athens and gone even further, crossing the Hellespont and seizing Persian territory in modern Anatolia. Now they were bottled up again in their Peloponnesian peninsula.
Bur alas for Thebes! Epaminondas died at Mantinea, together with his two possible successors, and when the weakened city of Thebes requested the help of the Macedonian Philip II in the quarrel with their neighbouring Phocians, they found an ally more dangerous than their foe.
In Athens Demosthenes, the greatest of orators, stirred his fellow citizens to resist Philip and persuaded Thebes to join them. Thus Athens lost her liberty; but it was worse for the Thebans, who when they revolted in 335 BC were all slaughtered or enslaved, and the city razed.
Who today is Sparta, who Thebes, and who the Macedonians? And who are the fatal orators?
The same date is also the anniversary of the battle of Mantinea (362 BC), in which the Theban leader Epaminondas inflicted his second (after Leuctra) decisive defeat on the Spartans. A victory, one could have hoped at the time, for the democratic city-states of Attica and Boeotia.
Previously, warlike Sparta had overcome Athens and gone even further, crossing the Hellespont and seizing Persian territory in modern Anatolia. Now they were bottled up again in their Peloponnesian peninsula.
Bur alas for Thebes! Epaminondas died at Mantinea, together with his two possible successors, and when the weakened city of Thebes requested the help of the Macedonian Philip II in the quarrel with their neighbouring Phocians, they found an ally more dangerous than their foe.
In Athens Demosthenes, the greatest of orators, stirred his fellow citizens to resist Philip and persuaded Thebes to join them. Thus Athens lost her liberty; but it was worse for the Thebans, who when they revolted in 335 BC were all slaughtered or enslaved, and the city razed.
Who today is Sparta, who Thebes, and who the Macedonians? And who are the fatal orators?
Monday, June 27, 2011
The old order changeth, yielding place to new
David Cameron, slated in an anonymous article by an old-guard Conservative MP in the Daily Mail on Saturday, is further embarrassed the next day by selective and distorted revelations of a confidential briefing by his "close friend" Christopher Shale (full document here), who is then found dead in a toilet at the Glastonbury Festival. I think Cameron is on notice and conscious of this, is likely to make some further misjudgments in the effort to regain control swiftly. It's very odd he should remark "a big rock in my life has suddenly been rolled away", which to some ears would have a most inappropriate Biblical association.
On the other side of the House, Jack Straw has returned to the fray with further carefully-calculated populist topics. The burka controversy stirred the pot nicely in 2006, when it had become clear that Gordon Brown wasn't up to filling the saddle from which he'd thrown Tony Blair. Now, it is equally clear that the voters are less than impressed with the Miliband brothers' exaggerated sense of political entitlement. So Straw has let it be known last week that he thinks the euro is doomed, and this week that he is mightily concerned about the selling of consumers' personal data by car insurers and others. His comments have been well taken up by the allegedly Tory-hating media and perhaps we are meant to start thinking that it is time that Ed should make way for an older man; never send a boy to do a man's work, and so on. But I think Richelieu deceives himself if he dreams of becoming King.
The next General Election will be interesting. Perhaps we will finally see the collapse of both main political parties, a wish Peter Hitchens has repeatedly expressed.
On the other side of the House, Jack Straw has returned to the fray with further carefully-calculated populist topics. The burka controversy stirred the pot nicely in 2006, when it had become clear that Gordon Brown wasn't up to filling the saddle from which he'd thrown Tony Blair. Now, it is equally clear that the voters are less than impressed with the Miliband brothers' exaggerated sense of political entitlement. So Straw has let it be known last week that he thinks the euro is doomed, and this week that he is mightily concerned about the selling of consumers' personal data by car insurers and others. His comments have been well taken up by the allegedly Tory-hating media and perhaps we are meant to start thinking that it is time that Ed should make way for an older man; never send a boy to do a man's work, and so on. But I think Richelieu deceives himself if he dreams of becoming King.
The next General Election will be interesting. Perhaps we will finally see the collapse of both main political parties, a wish Peter Hitchens has repeatedly expressed.
Tuesday, June 21, 2011
America's debt, the role of the State and the fight for survival
I'm going to look at the contention that State debt is the real villain and all we need to do is cut taxes and social benefits, and let business have its head. I don't feel it's quite as simple as that, but please do put me right wherever you see the need. This is an exploratory essay so I'd welcome correction, and further information and ideas.
First, let's agree that somehow or other, the State has to balance its books (over some cycle of time, to allow for recessions), because ever-increasing debt ultimately leads to ruin. That seems intuitively obvious.
So, how bad are the government's debts? Here's a graph of the official annual figures for the 58 years ending last December:
First, let's agree that somehow or other, the State has to balance its books (over some cycle of time, to allow for recessions), because ever-increasing debt ultimately leads to ruin. That seems intuitively obvious.
So, how bad are the government's debts? Here's a graph of the official annual figures for the 58 years ending last December:
That looks dramatic, though the very steep slope in the last couple of years is atypical because of attempts to deal with the post-credit crunch economic crisis. Now let's see it in the wider context of GDP:
For the Federal government's "real" (GDP-adjusted) debt, the lowest point is in 1974, then a few years later, starting around 1980, the debt begins to rise significantly, doubling from its low by the early 90s. After that there's the boom of the later 90s, the bust of the 2000s disguised/mitigated/deferred by monetary easing, and the reckoning of 2008 onwards. (The final slope looks much as it did in the previous graph, since the economy has stalled.)
We end the sequence actually not far above where we started in 1952, but this time against the background of a greatly changed economy and society. To understand this we need to widen the lens to include the panorama of Total Credit Market Debt Outstanding:
This doesn't fit conveniently into the conventional narrative. All those whirring government-debt-counting widgets on blogs, yet 2007 was an historic low point? Something's funny here; time to look at what else was going on in the credit market. Let's begin with the "domestic" elements:
Proportionally, households up from 19% to 25%, nonfarm up from 3% to 7%, others generally stable or declining. The domestic sector as a whole shrank from 95% of TCMD to 69%.
So what was responsible for most of the rest? The financial sector:
Four subsets account for most of the financial sector:
As you see, it's now mostly mortgage-related. The graph above takes us to 2008, and below you see the first decade of the new Millennium, including the bailout of mortgage pools:
This demonstrates the government's recent effort to maintain the status quo. Personally, I feel that criticising them for this is like stoning the firefighters when they come to the blaze. My gripe is about how the fire started, which was the attempt to support homebuying and then to shore up home prices.
Take a look at what happens when we include the above three mortgage-based elements in the category of household debt - I rename the aggregate as "house and home":
So it's not general government overspending that's the biggest problem; at least, not directly. And then, when the home lending cracks up, the government rides to the rescue:
Oddly, from 1974 on, home and government debt are almost mirror images:
But it wasn't so before, when the two lines ran almost parallel. Perhaps there was some postwar golden age when money was going not into the spendthrift government, not into illiquid and non-income producing homes, but instead boosting American business? It seems so, if we look at the other subsectors of the "domestic" heading:
Having partially re-categorised the debt in a way that I hope you won't think too unfair, here's the simplified big picture showing how things changed over those 58 years:
To me, this seems illustrative of developing malinvestment. We have been buying and even speculating on houses, and filling them with foreign-made TVs, computers, iphones etc; but we've had much of our consumption on credit and indirectly (via the Treasury), quite a bit of that from abroad. (I say "we" because my brother is now an American, and aso because Britain is America's mini-me in terms of its economic problems.)
Imagine if that money had gone into business ventures, instead of illiquid and non-income-producing housing assets. What if successive governments had reined-in credit and consumer spending, and encouraged the reinvestment of profits into industry and research, rather than the unreally-rewarded financial sector?
Far from over-regulating, it would seem that government has failed to regulate sufficiently. Laissez-faire economics may work okay when the quantity of money is limited, but fiat currency (and debt, which forms part of it) entails the duty to supervise and intervene when necessary.
Was debt ever good? I speculated earlier that there might have been a postwar golden age of beneficial credit, when business borrowing accounted for a third of all debt. Yet when we relate the credit market with GDP, here's the result:
It seems as though debt never fully pays for itself, and the faster the debt accumulates, the worse it gets. Coincidentally, Karl Denninger has just made the same point. Last year, Nathan Martin's "Chart of the century" purported to show that beyond a certain point, additional debt results not just in lesser growth, but actually reduces GDP. Are we all wrong, or is "sound money" a (maybe the) precondition of a sustainable economy? (And how do we square this with the fact that many individual businesses borrow and prosper - is it that leverage gets you market share but tends to shrinks the market overall?)
The size of the debt is unimaginable, though still calculable. Four years ago I was reading Michael Panzner reporting on comptroller-general David M. Walker's mission to warn the nation, Cassandra-like, of the scale of unfunded State healthcare obligations. Even then, the latter was talking about figures exceeding $50 trillion. Well, we've breached that ceiling right now, even without factoring-in the notional capitalized value of benefit programs. Here we are:
Some say we're approaching (and some others say we're past) the point where it becomes mathematically impossible for the economy even to service the interest on our obligations, let alone reduce the amount outstanding. I'm not sure I agree, though the challenge is certainly daunting. Here is the total credit market debt expressed as a percentage of GDP:
If we have to be deeply in hock, perhaps it's better to have the government take care of some of the burden, for three reasons:
1. The debt doesn't have to end, as for example a mortgage does. Loans may need to be rolled-over, but the nation as a whole doesn't retire, so it can borrow forever.
2. Government debt is more secure, in the sense that more fiat money can be created to make the payments. How can you run out of nothing, which is where the money comes from? (Or rather, it comes from diluting the value of other people's stock of the money.)
3. The interest rates are, accordingly, lower than for most private and corporate borrowing. The average for all Treasury interest-bearing debt is currently 3%, whereas fixed-rate mortgages (if you can get one) are running at 4% - 5%, and credit cards are now averaging over 16%.
So, by all means let the government play little Dutch boy, plugging the holes in the dam. The total interest on the national debt for fiscal year 2010 was $414 billion, a vast sum but still an effective interest rate of around 3%. What average rate is being paid on the other $38 trillion or so that's burdening the economy (not to mention capital repayments)? Imagine if that debt was on terms similar to the government's...
Maybe it's not the banks that should be bailed out, but businesses and consumers. How would things look if more debt was transferred to government and slowly retired and paid for by various forms of taxation? Could this help distressed consumers and businesses keep going for long enough to get back on their own feet? Or must we go the let-'em-fail way demanded by free-market Puritans? (In which case, can we also get puritanical about the money supply and who is allowed to supply it, please?)
Bailing out is a good thing to do when the ship is sinking, but we have to do much more than that. So much has to go right that it's no wonder Dr Marc Faber (aka "Doctor Doom"), away in his Thai retreat, reckons it's hopeless and predicts a complete economic "re-set" (including the death of the dollar) and war. I hope he's wrong for once, otherwise I'm wasting my time here.
Survival begins in the head: you have to believe you'll get through, so you can condition your mind to look for tools and opportunities. Can we work on the assumption that there is a way?
One way was suggested in 1993 by the far-seeing billionaire Sir James Goldsmith, who recognised the threat that GATT posed to Western economic and social stability. Sadly, the man is no longer with us, but his book, "The Trap", is still available and highly relevant, even more so now that Goldsmith's predictions are coming true.
Globalisation has tipped the balance of power so decisively in favour of capital and against labour that American - and European - society is beginning to tear itself apart. Sir James advocated a system of economic trading areas to protect against completely unbeatable competition from extremely low-cost labour forces.
Either capitalism - which, theoretically, creates work and wealth by allocating capital efficiently - must have some bounds set for it so that it nurtures the society that gave rise to it - or, as Marx predicted, its contradictions will destroy itself. If we don't want an Ayn Rand dystopia, we have to make it possible for our people to work and prosper.
We are presently trading away not merely our income but the jobs that earn it, and the capital and physical means that create the jobs, and the knowhow that utilises the means in productive projects, and the intellectual property rights that safeguard the knowhow. As for the development of fresh, potentially wealth-creating knowledge, I understand that businesses have been cutting their R&D and even the universities favour their MBA schools over maths and science.
We need a plan. It will call for visionary leadership, skilled and patient management, the most careful international diplomacy, and the co-operation of politicians, voters, workers, industrialists and financiers.
In the meantime, emergency measures may be necessary, and they may not be the ones the econo-fundamentalists want. Austerity could be the worst possible solution at this stage - it is the exact opposite of Keynesianism to let rip when times are good and starve the economy further when there's already a recession on, and others are making this point already, e.g. "Rortybomb" and Australian economist Bill Mitchell. And there are those who say that taxation is nothing like as onerous as many people believe.
Or do you go with "Doctor Doom"? If so, maybe you shouldn't be planning to be rich in your own country, but preparing to move far away from the consequences of the coming collapse.
If you think that is irresponsible doom-talk, consider the President's Executive Order of a couple of weeks ago. I don't read the establishment of a White House Rural Council as mere quasi-socialist interfering; I sense the beginning of a national plan to survive and feed the nation in disrupted times. If it isn't such a plan, then there should be one.
For it's about more than just money, now.
INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Saturday, June 11, 2011
Friday, June 03, 2011
Why the stockmarket could fall by 70% in real terms
(The following article was published yesterday on Seeking Alpha.)
_______________________________________
My Feb. 11 SA estimate that the Dow could drop to 4,500 is echoed in a May 16 video interview with Russell Napier, who is predicting an equities bottom at around S&P 400. Actually, this is even lower than my guess, in proportion to the index chosen, but Napier says his figure is an average of what he expects valuations to be.
I've had a little abuse for this view, some rather personal, and it seems I'm too dumb to notice that the market has just had its biggest, fastest rise in history. Actually, the latter fact has not escaped me, and I take my hat off to those who have got on and off the Enron-like ride at the perfect moments -- so far.
What we've really seen in the last decade is two economic heart attacks and liberal use of the defibrillator: First a slash in interest rates that (given the venality and criminality of some in the financial world) led indirectly to the busting of the housing market and some major banks, and then a pouring of resources into the banking system that is now busting the credit of whole governments.
In a way, conventional market analysis is now hardly relevant, because the system is so grossly interfered with by government that everything hangs on what the Fed decides to do ... and how long it can get away with it. I pointed out several months ago that China (among others) is becoming very antsy about the export of America's inflation to the developing world.
In a May 10 interview with MoneyWeek's editor Merryn Somerset Webb, Napier says he expects the "reset" to come in two stages: First deflation, and then sharp inflation. I've pondered the in/de question for a long time, and his analysis seems plausible to me. We're so interconnected these days that a bust wouldn't just wipe out profligate banks, but also would crater the pensions and investments on which we have come to depend ... not to mention the taxman, who (particularly here in the UK) has found it very convenient to harvest money from the swollen financial sector. So inflation will be seen as the way to steal wealth to spackle up the cracks in the system. (Can you make a whole house out of spackle and duct tape, though?)
What's unusual about the current situation is that bonds are not on the other end of the seesaw to equities. Napier foresees a swift move up in interest rates that will undermine both. They say you shouldn't give an estimate and a timeframe at the same time, but he does, for the bear "pit": 2014. We shall see.
Meantime, Mike Shedlock today gives an alternative view, pointing out that corporations are holding a lot of cash. Maybe so, though I'd like to know more about who has the cash and who has the debt; whether some have both; and what the latter may do if interest rates spike. Not to mention what will happen to the demand side when ordinary Americans finally run out of money, as indeed many are doing already.
I have suggested that cash is not a bad place to be, unless you are one of the SA-reading gunslingers who has a sharp eye and sharper reflexes. Given the growing vulnerability of the US dollar (and various moves to weaken its position as the world's reserve currency), Napier has said (in the May 16 interview linked above) we might consider the currencies of emerging markets.
And I hedge my bet on the destination of the market by saying it may not be Dow 4,500 or S&P 400 in nominal terms -- but the market could well be there after adjusting for inflation.
Finally, there is a bright gleam in the dark: As Napier says, the bottom won't be in for long, and those who have the cash then and get in fast can "go to the beach" for years afterward. Like, as the FT interviewer said, in 1982.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
_______________________________________
My Feb. 11 SA estimate that the Dow could drop to 4,500 is echoed in a May 16 video interview with Russell Napier, who is predicting an equities bottom at around S&P 400. Actually, this is even lower than my guess, in proportion to the index chosen, but Napier says his figure is an average of what he expects valuations to be.
I've had a little abuse for this view, some rather personal, and it seems I'm too dumb to notice that the market has just had its biggest, fastest rise in history. Actually, the latter fact has not escaped me, and I take my hat off to those who have got on and off the Enron-like ride at the perfect moments -- so far.
What we've really seen in the last decade is two economic heart attacks and liberal use of the defibrillator: First a slash in interest rates that (given the venality and criminality of some in the financial world) led indirectly to the busting of the housing market and some major banks, and then a pouring of resources into the banking system that is now busting the credit of whole governments.
In a way, conventional market analysis is now hardly relevant, because the system is so grossly interfered with by government that everything hangs on what the Fed decides to do ... and how long it can get away with it. I pointed out several months ago that China (among others) is becoming very antsy about the export of America's inflation to the developing world.
In a May 10 interview with MoneyWeek's editor Merryn Somerset Webb, Napier says he expects the "reset" to come in two stages: First deflation, and then sharp inflation. I've pondered the in/de question for a long time, and his analysis seems plausible to me. We're so interconnected these days that a bust wouldn't just wipe out profligate banks, but also would crater the pensions and investments on which we have come to depend ... not to mention the taxman, who (particularly here in the UK) has found it very convenient to harvest money from the swollen financial sector. So inflation will be seen as the way to steal wealth to spackle up the cracks in the system. (Can you make a whole house out of spackle and duct tape, though?)
What's unusual about the current situation is that bonds are not on the other end of the seesaw to equities. Napier foresees a swift move up in interest rates that will undermine both. They say you shouldn't give an estimate and a timeframe at the same time, but he does, for the bear "pit": 2014. We shall see.
Meantime, Mike Shedlock today gives an alternative view, pointing out that corporations are holding a lot of cash. Maybe so, though I'd like to know more about who has the cash and who has the debt; whether some have both; and what the latter may do if interest rates spike. Not to mention what will happen to the demand side when ordinary Americans finally run out of money, as indeed many are doing already.
I have suggested that cash is not a bad place to be, unless you are one of the SA-reading gunslingers who has a sharp eye and sharper reflexes. Given the growing vulnerability of the US dollar (and various moves to weaken its position as the world's reserve currency), Napier has said (in the May 16 interview linked above) we might consider the currencies of emerging markets.
And I hedge my bet on the destination of the market by saying it may not be Dow 4,500 or S&P 400 in nominal terms -- but the market could well be there after adjusting for inflation.
Finally, there is a bright gleam in the dark: As Napier says, the bottom won't be in for long, and those who have the cash then and get in fast can "go to the beach" for years afterward. Like, as the FT interviewer said, in 1982.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Saturday, May 28, 2011
NS&I Savings Certificates - the clock is ticking!
If you're considering buying an NS&I Savings Certificate, especially the (RPI-) index-linked version, you may need to decide quickly.
NS&I's site says they "expect [them] to be on sale for a sustained period of time", which gives them room for manoeuvre as to timing and could leave ditherers suddenly high and dry. They also say "we are currently experiencing high volumes of calls" and this could mean that they will reach their overall sales target well before the end of the financial year - which is why, reportedly, the Certificates were withdrawn from sale last July . It's also worth noting that there is no specific target for Savings Certificates - as I reported here last month, it is merely expected that NS&I will end the tax year managing £2 billion more than it did at the beginning - spread over all its products, including e.g. Premium Bonds.
Moreover, there is commercial pressure to withdraw the Certificates. I reported that they were back on 12 May, and a mere two weeks later the Nationwide Building Society began complaining of "unfair competition" from NS&I.
The Government is in a cleft stick: people should have a secure and inflation-proof haven for their cash, but it is also a priority to get banks and building societies lending again to stimulate the economy.
It has also been observed that since the financial sector has been allowed to dominate the economy, the Treasury has become semi-dependent on taxes on bankers' bonuses. I have to bite my tongue at this point!
Actually, the competition complained of is not as fearsome as it was. True, you can invest up to £15,000 for a 5-year period (and can also buy them for children aged seven or more); but the 2- and 3- year versions are no longer available for new purchases (existing ones can usually be rolled-over on maturity), so the maximum you can invest has been sharply reduced: in 2006 you could have committed up to £45,000 per person, by buying three different versions at the same time!
Further, although the Certificates are still RPI-linked and tax-free, the additional interest is now only 0.5% per year. As before, you can access the cash before the end of the 5-year term (I suspect this term was chosen as being the least attractive), but you lose a year's interest.
Having said that, I still think they are better than what you can get elsewhere. As this FT article says (see end), the commercial alternatives are either taxable or carry a degree of investment risk.
If you do want to get in (and remember, this is NOT a personalised recommendation!), do so before the market whinges the Government into submission. You can apply online here.
INVESTMENT DISCLOSURE: We're just considering buying some ourselves!
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
NS&I's site says they "expect [them] to be on sale for a sustained period of time", which gives them room for manoeuvre as to timing and could leave ditherers suddenly high and dry. They also say "we are currently experiencing high volumes of calls" and this could mean that they will reach their overall sales target well before the end of the financial year - which is why, reportedly, the Certificates were withdrawn from sale last July . It's also worth noting that there is no specific target for Savings Certificates - as I reported here last month, it is merely expected that NS&I will end the tax year managing £2 billion more than it did at the beginning - spread over all its products, including e.g. Premium Bonds.
Moreover, there is commercial pressure to withdraw the Certificates. I reported that they were back on 12 May, and a mere two weeks later the Nationwide Building Society began complaining of "unfair competition" from NS&I.
The Government is in a cleft stick: people should have a secure and inflation-proof haven for their cash, but it is also a priority to get banks and building societies lending again to stimulate the economy.
It has also been observed that since the financial sector has been allowed to dominate the economy, the Treasury has become semi-dependent on taxes on bankers' bonuses. I have to bite my tongue at this point!
Actually, the competition complained of is not as fearsome as it was. True, you can invest up to £15,000 for a 5-year period (and can also buy them for children aged seven or more); but the 2- and 3- year versions are no longer available for new purchases (existing ones can usually be rolled-over on maturity), so the maximum you can invest has been sharply reduced: in 2006 you could have committed up to £45,000 per person, by buying three different versions at the same time!
Further, although the Certificates are still RPI-linked and tax-free, the additional interest is now only 0.5% per year. As before, you can access the cash before the end of the 5-year term (I suspect this term was chosen as being the least attractive), but you lose a year's interest.
Having said that, I still think they are better than what you can get elsewhere. As this FT article says (see end), the commercial alternatives are either taxable or carry a degree of investment risk.
If you do want to get in (and remember, this is NOT a personalised recommendation!), do so before the market whinges the Government into submission. You can apply online here.
INVESTMENT DISCLOSURE: We're just considering buying some ourselves!
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
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