Financial Information

I remember at college reading the New Anatomy of Britain by Anthony Sampson.  In the present climate, how he would have smirked.   And that weird background noise you can hear is the rumbling as those old, unreconstructed, communists and command economy enthusiasts spin in their graves.
This current global economic crisis is far more significant than just being a “structural correction”, “re-adjustment” or a “bigger blip than usual” in the normal economic cycle of boom and bust.  It’s far more important than that.  Far more significant even than the “so called” collapse of communism.  It’s the death of casino style capitalism and not before time.
The truth is  we’ve been borrowing too much in the developed world and the processes of paying it back  is creating falling living standards and shaking the foundations of world capitalism.  Households have borrowed too much.  Big companies borrowed too much. In fact the only companies who didn’t fall into that trap are SMEs.  The total savings of smaller companies still exceeds their aggregated debt, yet it’s apparently for the benefit of small companies that the government is pushing the banks to extend or maintain lines of credit - a target audience that generally speaking doesn’t want or need it.
The sheer complexity of half the financial services products wasn’t understood by the public – and it’s now clear that those in the financial services industry selling the stuff didn’t really have much of clue either!  The massive and unsustainable growth in the City of London may have maintained its reputation as one of the world’s premier markets, but at what cost?  The City is shrinking with massive job losses and a permanent loss of Exchequer income of around £40 billion. 
The gross foreign liabilities of  the high street banks is about £4,400 billion – roughly three times the size of the UK’s annual economic output.  All that debt is basically the regurgitated savings of other, usually Asian, economies.  For the past ten years, millions of Chinese have slaved away on near subsistence wages yet they still managed to save at a prodigious rate.  They’ve worked hard making the consumer goods that we westerners wanted to buy, and the bankers took those Chinese workers’ savings and effectively lent it to us so we could buy all that consumer stuff they were making in the first place.  At some point, it was inevitable that those Chinese and Indians and Japanese and Koreans would decide that they might like some of that same “standard of living stuff” they were making, so we’ll have to do with a bit less. 
Our illusion of prosperity was based on their labour (and their thrift) and was handled in a cavalier fashion by so-called “experts” who actually didn’t know what they were talking about.  And in the irrational, emotional, illogical, short-termist, rumour fuelled melee that is free enterprise capitalism, no one can ever “know” what they’re talking about – just as no-one can “know” what the lottery numbers are going to be.  So it’s evident that global economic (and shortly thereafter political and military) power has shifted more of less permanently East.

And the most telling example of just how this economic power balance has shifted? Zhou Xiaochuan, governor of the Chinese Central Bank, telling US Treasury Secretary Hank Paluson where he went wrong.   How overconsumption and high reliance on credit was the cause of the US financial crisis.  Why they should get their act together to raise savings ratios and reduce trade and fiscal deficits. Significant advice when it’s the nation that has fuelled your excesses giving it! 
So the nature of the capitalism is bound to change because arguably the most important player in the global economy now is China – more important even than the USA.  And China has a completely different take on how capitalism should work, underpinned by the founding philosophy of the communist party and a centralised government.  And that’s increasingly true all over the world.  The survival of several financial institutions now entirely depends on the goodwill of governments and taxpayers – worldwide they are now being propped up to the tune of £9,000 billion – equivalent to almost a quarter of global GDP.

Reconciling political traditions with the imperative of making a globalised economy secure will be difficult, but I suspect the most influential political tradition in that task will be the loose command economy/ regulated and controlled free market model that the Chinese have adopted.  And compared with what we’ve seen of the alternative, I can’t see too much wrong with that.

Its now official. The UK economy is officially in recession. Confirmation of this widely known fact came today (23rd Jan) from the Office for National Statistics whose figures showed that the economy has shrunk by 1.5% in the final three months of 2008.

This latest fall follows the previous fall of 0.6% that took place in the third quarter of 2008. This is the most significant fall since 1980 and exceeds the predicted fall of 1.2%. Sterling continued to fall in value, losing another 3 cents against the dollar. The official exchange rate was only $1.357 to the pound at the start of the day.

Economists are saying that this fall in GDP is staggering. Some respected economists are saying that complete financial meltdown has been averted but there is an expectation that this latest recession will be deeper than that experienced in the early 1980s.

The current economic crisis is rooted in the 2007 US housing market debacle. Almost every sector of the UK economy is now adversely affected. There is no longer any debate regarding whether the UK will enter a recession. Discussion is now focussed on how deep the recession will be and how long it will last.

Early predictions suggested that the recession would match that experienced in the 1990s but new estimates are saying that this latest recession will be equally as bad as that experienced in the 1980s and likely to be a lot worse. The big difference between then and now is that this economic crisis is worldwide. There is no industry or market sector that is unaffected.

It is expected that the recession will push unemployment to levels that have not been seen for decades. Falling demand for products and services is already leading to many employers having to lay off employees, many of whom would have considered their jobs to be safe.

If you’re travelling anywhere you will be acutely aware of the current exchange rate. When flying from Gatwick or Luton be sure to book your Gatwick Parking or Luton Airport Parking in advance and you will make some great savings.

In our recent recession it has been quite a stressful time for those ready to retire or that are already retired.  Let’s face it, if you are in your 20’s it’s no big deal if the market drops by 20%, which by the way since October of 2007 the DOW is down over 20%.  When you are in your 50s, 60s or 70s and you are depending on market returns this recession is putting fear in many. This recession is different than most.  We are in a time when the stock market is not performing but there really is no other alternative.  Bonds are low, bank CDs are paying paltry rates and real estate is certainly too risky for most retirees.  All this and we still have to try to beat inflation which should be in the 4% to 5% range.

If you have been on my blog http://www.kenhimmler.com you know that I have been suggesting that in certain cases it may make sense to use the © Recession Split Strategy.  This is an overview of how it works.

We use an insurance company that issues an equity indexed annuity and pays a bonus.  The bonuses range from 5% to 15%.  This gives us an upfront ability to invest into index options without any out of pocket capital risk. This way over the next two to four years while the economy is working its way through the recession cycle we are splitting the investment into a safe – no risk vehicle while creating an asset allocation model with the insurance companies bonus.

If the markets go crazy and go up then the retiree can have a chance at beating inflation. If the markets go down further and or stay level then the retiree does not put their capital at risk of market volatility. Please understand that while this is a terrific idea it is not for everyone and there are some positives and negatives.

Because this is such a needed concept I have decided to do a teleconference. There is not enough time to organize a physical seminar and there are a lot of clients and blog members that are out of town for the summer. Therefore if you are interested in finding out more about how this concept works we will be doing a sixty minute teleconference planned on July 31, 2008. This teleconference will be at no cost but is limited to the first 100 people to register due to the limitation on our teleconference service. You will have the ability to log into the one hour presentation live and listen in to the conference at your home phone. If you register before July 25th we will also send you the live recorded teleconference so you can listen to it again.

As usual, I am not going to promote any product or any insurance company. This is best for those people who are really interested in learning how to protect and preserve their capital but still striving to outpace inflation. During the teleconference we will also discussing how you can turbo-charge this idea by using your IRA and a ROTH conversion to substantially reduce the income tax effect and increase your net rate of return.

You can also register and if you are unable to attend we will still send you the recording and the video file for you to play at a later time. To register you can go to http://www.kenhimmler.com or you can call our line directly at 941-907-0700 and use extension 106 and you can leave a message with your name, your phone number and your email address and we will send you the registration information.

For more information on financial planning, visit www.iamllc.biz