No one has owned a single Eurozone asset at our behest, but it was inevitable that in a joined up world its fall into chaos would infect the entire world. We are frustrated this Frankenstein’s monster is assailing the value of your assets. But we are where we are, and must maintain our focus on the future rather than railing at the present. Some of you have asked why we are not hitting panic buttons, and here’s why.

In “normal” times markets trade near to “fair” fundamental value. During periods of overt investor optimism markets rise above “fair” value, and will ultimately fall down toward it again when irrational exuberance subsides. Conversely, when uncertainty reigns markets will be pulled below “fair” value, and will rally once worries are laid to rest. But when out and out fear reigns, markets tumble – as at present.

If the fundamental value supporting equities is diminished investors may do well to follow the herd and sell. But if value remains intact selling would be daft, since once fear evaporates prices will snap back toward “fair” like a piece of elastic. Our favoured equity markets and some other assets now appear good value to us at current levels, so to sell now would deny the benefit of the inevitable “snap back”.

Many sell at depressed levels looking to time re-entry lower down – but that is a triumph of hope over experience. If you sell low, and markets soar away without you, then you are just another perennial victim. That is why we hold that selling into panic is a recipe for failure. Holding on patiently to something that is undervalued when time, odds, history and fundamentals are on your side has rarely proved a bad idea.

There is one overarching reason we are more frustrated than worried. When push comes to shove Central Banks will print vast quantities of Euros and throw them at Eurozone states and banks in whatever forms required to resolve the crisis. Markets will rocket on this tidal wave of liquidity. Another sticking plaster, of course, and the long term consequences will be dire. Enter your gold and Index Linked Bonds.

So while you cannot escape the chaos you can coolly plot a damage limitation route through it and, importantly, plan ahead to benefit from its fallout. If there is method to your madness you are one up, because there is none behind the Eurozone’s. The sooner it falls apart the better, because we are doomed to austerity, low growth, uncertainty and creeping asset destruction until the whole rotten edifice crumbles.

Bob D of Egham says our missives make him cry, and asks if we can fill one with cheerful news, even if we have to make it up. Congratulations Bob, you won the EuroMillions Lottery jackpot, and ten million Spanish villas are all yours.

A fleabite on the rump of the Eurozone Greece may be (at 2% of aggregate GDP) but its elections in Greece were actually the more worrisome. If, as appears likely, Greece quits the Eurozone, other austerity allergic peripheral states might copy their template and follow suit. This prospect has scared markets to death, and everything has sold off bar the “safe havens” of Gilts, US Dollars and Treasuries, and Bunds.

All are awful value, but are perceived as the cleanest shirts in the laundry basket. Folk are stampeding into assets on which they cannot but lose, and non-correlation has gone AWOL; both typical in times of angst. Even gold has not ridden to the rescue as panic stricken investors flock to the US Dollar, but the conditions for it to flourish at a later stage of the debt crises all remain emphatically in place.

Our three horsemen of the apocalypse (Debt; The Eurozone, and inflation) are riding abroad – but the latter is cantering lamely behind the front runners. Inflation may stay subdued for some time – especially in the Eurozone, which does not have the puff to inflate a balloon, let alone its economy. But inflation is the grim logical end game of all the financial chicanery thrown at the global debtgeist, and we must be prepared.

Our response to prevailing panic is to ignore it, because current events are already factored into our mix, and it rarely pays to shut stable doors after the horsemen have bolted. As recently reported our major ongoing initiative is to gradually increase Global Index-Linked Bond weightings, with a view to minimising trampling by today’s apocalyptic horsemen, and unseating tomorrow’s before it limps across the line.

N&SI is offering no new issues, as it has “taken all the money it needs”. The truth is it is under orders not to compete with the banks, to keep them solvent. So banks have a clear path to foist dross on the taxpayers who rescued them, with only dwindling ranks of independent advisers standing in their way. The FSA is duly turning the heat up on our sector. A financial services world dominated by banks? Be very afraid.

A Ponzi Scheme is a fraudulent investment operation that pays returns to investors from their own money or the money paid by subsequent investors, rather than from profit earned by the Scheme itself. All will collapse. The FSA, stung by criticism further to umpteen cases of causing losses to the public it exists to protect, has taken to labelling schemes it does not like, or cannot regulate, as Ponzi Schemes.

The Times reports taxpayer liabilities for public sector pensions are now rising past £45,000 per household, and young people are faced with this demand to sustain the unsustainable on top of student debts and diminishing prospects of jobs or affording homes. The victims are taxpayers (especially the young) and workers fed promises no one could ever have hoped to keep. Now that, FSA, is a real Ponzi Scheme.

The third largest Spanish bank was bailed out this week. The largest is stronger, but still worth avoiding. For the second time in our careers “stuff it under the mattress” is almost sensible advice. But fire, theft and inflation aside, best not park your folding under the mattress in the spare room when Auntie Mabel comes to stay…..

Every day without fail we chaps gawp at our trading screens hailing “extraordinary” price movements. Every man and his dog have opinions on what should go up and what should go down and (quietly) so do we. Do we actively trade markets based on experience gathered over lifetimes spent watching them? No fear. Sadly, we know by bitter experience this would be the road to nowhere. A case in point follows.

Take the Euro, the cancer killing the Eurozone. It should “logically” have fallen through the floor. But it has been stability incarnate, and today trades 10% above its long term average price. One explanation for this is that without carrying deadbeat peripheral states the currency would be much higher – which is why Germany won’t let it die. But the main reason the Euro is strong is because the markets say so.

Financial markets are the ultimate pricing mechanisms. The price of any asset at any time comprises the sum total of all the combined knowledge, fear and greed of the entire world. Therefore, by very definition, the market is always right. Price moves might appear utterly illogical and inexplicable if they conflict with your point of view, but that could not be more irrelevant. The price is always right, so you are wrong.

There is no way mere mortals can reliably and consistently second guess the ever-changing consensus. Those who believe they can are delusional, and are joined by those who make knee-jerk decisions (generally out of fear and greed) in being doomed to mediocre results at best, and costly failure (exacerbated by trading costs) at worst. Some will be lucky for a while, but luck makes them hostages to fortune.

Today’s asset prices are largely functions of today’s knowledge, fear and greed, tempered by a degree of forward looking expectations. But the length of time players look ahead will dwindle toward zero in near linear fashion over time. So the further out you are prepared to peer, and the more you are prepared to ignore short term price movements, the greater the odds on you achieving above average results.

Avoiding human frailties is the hard bit. All but the most opinionated investors should know that the shorter the view they take, the more laws of average returns will narrow their chances of success toward 50% at best. But logic is often transcended by the powerful forces of fear, greed and ego. Folk are three times as unhappy about losing money than they are happy at making it, and this drives their behaviour.

We pursue engrained long term trends, identify optimum means of profiting from them, mix and match to control volatility risk and maximise returns, then maintain a close watching brief. Knee-jerk changes are unnecessary because anything that was right yesterday is not wrong today simply because the price goes down temporarily. We shrug off financial storms – our sole worry is that you worry. That is our job.

There are infinitely worse things to worry about. Our Clients Phil and Sally J and Jan A are eating out tomorrow serenaded by an ABBA tribute band. Talk about meet your Waterloo. Mama mia!

We are neither optimistic nor pessimistic about financial markets in the short term. Encouraging news from many quarters sends them up only for the latest Euroscare to knock them down again, so it is foolhardy to hold an opinion while the storms rage. However, as stated recently, while we cannot define how long steely patience will be required, we have rarely been so optimistic about the long term outlook.

Equity markets are barometers of economic conditions. Shares of robust companies with durable brands, strong balance sheets, high dividend yields and huge cash reserves are dirt cheap in an historical context, but may make little headway while chronic uncertainties override fundamentals. Those who tuck the right shares away now, and can turn a blind eye to price volatility, should eventually be richly rewarded.

Between the short and long terms lies an indeterminate chasm. Acknowledgement of cold reality dictates our focus must remain on the long term while grinding out positive returns from a near zero-growth environment in the meantime. Hopes of jam today are fanciful; what is required now is to protect and nurture assets to optimise the platform on which we can build when the sun emerges from behind the clouds.

The main drains on global growth blocking progression to “normality” are of course debt in general; and the Eurozone’s in particular. This pair will blight growth for years to come but, despite apocalyptic headlines to the contrary, they will eventually be “sorted”. When push comes to shove the world will throw whatever amount of money is required at the problem, and the monopoly printing presses will roll until then.

The resulting dilution of currencies gives us a steer on negotiating the medium term chasm. Gold should flourish, so we should ignore the currently becalmed price and await developments later this year. Food and oil holdings are also “keepers”, with the latter doubling up as additional “disaster insurance”. But one consequence of money printing that could derail “chasm planning” is the inflation that will likely result.

Whilst it currently has no mandate to do so, we see it as inevitable the European Central Bank will need to print Euros like mad when the Eurozone teeters on the brink of oblivion. So looking ahead (as we must) if cranking up the Euro printing presses is the only way the world will negotiate a path through the chasm, then reinforcing portfolio inflation protection outside the UK must make sense.

Hence our recent announcement we are proposing increases in Global Index Linked Bond weightings as Reviews are conducted. This “defensive” move might turn out to be anything but. Our mantra that everyone should have UK Index Linked Gilts at the core of their portfolios paid off handsomely last year, when they were the top performing asset class of all. Who is to say their global cousins will not follow suit?

As a “Family Office”, we often coordinate planning across generations, but beginning to take on your grandchildren is making Peter Pan and Tinkerbell feel old. It seems modern technology is leaving us behind, as we are more face pack than Facebook; do not want to be twits; and hope it is many years before we need iPads.

The latest report from credit information firm CMA ranks sovereign debt securities in order of default risk, allocating percentage probabilities to each. Portuguese Bonds carry a 60.5% chance you will lose money. The UK is the sixth most creditworthy nation; our gilts carrying a “mere” 5.6% risk of default. Yes, even gilts (one of the “safest” investments) may carry a 1 in 20 chance you will not get your money back.

Take the 10 year gilt maturing March 2022 (the commonly quoted benchmark). It pays 4% pa gross interest per £100 held, but today you will pay £116.335 to get £100 back, giving a net redemption yield of just 2.16%. So you are effectively lending the government money at a negative real return (currently -1.4% pa) with a 5.6% risk you will not get all your (depleted) capital back. A buy purely for the public spirited.

For umpteen reasons neither bank deposits nor any N&SI wares bar Index Linked certificates (unsurprisingly currently unavailable) are good alternatives. Poor returns aside, if push comes to shove Government would most likely repay sovereign debts ahead of compensating savers and bank depositors. If gilts may carry 1 in 20 odds of non repayment, what odds would you ascribe to lower priority alternatives?

Spain is touted as the first big Eurozone domino to fall. The country is in a mess, mostly down to the parlous state of its banks – which have massive worthless loan hangovers from the Spanish property boom, and are on life support from the recent €1 trillion loans from the European Central Bank. CMA gives the chance of default on Spanish bonds at a whopping 32.1%. Interest rates are around 6%. Any takers?

It is hard to predict how Spanish fall-out might affect us, but an obvious precaution is to extract funds from Santander (Spanish and bank are a toxic mix). Its implausibly high savings rates might be regarded in similar vein to those on offer from Iceland five years ago. If the UK Government presents a 5.6% default risk, the odds against a Spanish bank must be unpalatably high. Better homes for savings lie elsewhere.

The CMA Report helps place asset risk into context, and starkly illustrates there is no such thing as “no risk”. This aside, all perceived boundaries between “low” and “high” risk are now hopelessly blurred. This calls for a financial planning approach founded on balancing the unthinkable with the foreseeable, building in trade-offs between the two, and accepting precise measurement is impossible. We shall revisit risk anon.

Ah, Spain – if the sun doesn’t burn you, its property market, banks and bonds will. Now Greece has slipped from the headlines Eurozone problems might appear to have diminished – but they have only been taking a siesta.

As we said recently Government’s job is to bleed us dry without (a) us noticing or (b) prejudicing re-election. For this reason (not just because politicians are unqualified amateurs) we should always question government’s motives, and reject anything it encourages us to do. Likewise in making financial decisions we should not take any notice of what Government says, but carefully interpret what it does not say.

There are three ways developed economies can deal with their debt piles. They can grow their way out – but that is a big ask in the teeth of austerity measures. They can default on their debts – but that is a grisly last resort. Or they can create inflation to gradually erode the value of their debts “painlessly”. This is currently the only feasible option – but for any government to espouse or confess it would be electoral suicide.

Our Government has already foisted future inflation on us by stealth via Quantitative Easing, in the process robbing savers and pensioners via low gilt yields and interest and annuity rates. But long before UK Plc’s books can be balanced we will have suffered a lot more. You will hear many “experts” warning of deflation, but don’t believe a word of it – if we do not get inflation naturally, Government must create it.

The route to preserving wealth and sanity is to shrug off official double-talk, negative headlines and the opinions (vested interests) of “experts”, and focus on fundamental long term probabilities that will endure beyond current uncertainties. This is a clear case of “us against them”. All else regardless we must remember inflation is wealth’s greatest enemy, and protecting ourselves against it must always be a top priority.

As Governments flood the global financial system with printed money inflationary threats will rise, as must the measures we employ to counter them. Index Linked Gilts should remain embedded at the heart of asset portfolios. Tangible assets such as oil and food provide indirect protection against inflation (as major causes of it) and gold protects on a different level (we will return to the yellow metal anon).

As inflation is far from being solely a UK problem, protection on a global scale is becoming increasingly important – not just for its own sake, but also in the name of enhancing asset diversification and non correlation. We are therefore advocating measured increases to weightings in Global Index Linked Bond Funds, and this will feature in all Asset Allocation Reviews we conduct on your Accounts from now on.

If our treasonable opinions above are frowned upon we might shortly be announcing a move from KB Towers to luxury new offices paid for by the taxpayer – and we don’t even have to file dodgy expenses.

Markets fell and non-correlation ceased to function; a sign of acute stress. This was mainly due to the announcement the US is deferring further Quantitative Easing. Markets had remained elevated by the promise of floods of phoney liquidity, and when their next big fix of funny money was withheld cold turkey set in. Rising bond yields in Spain (the most ominous immediate Eurozone threat) added to the gloom. 

The return of reality is perversely a relief as it is difficult to assess markets when the entire world appears to be smoking crack. The crux of most global economic ills is of course debt, which will continue to impact on our lives and wealth via both austerity measures and a nagging downward drag on asset values. Should anyone think we are over-egging the impact of debt and austerity the following will confirm otherwise. 

Official forecasts give us that UK state debt will exceed £1.4 trillion by the end of this Parliament; an increase of over 40% on 2011-12. During this period national income (GDP) is expected to grow by just 20% (fanciful?) leaving us still spending £21 billion more in 2016-17 than we earn. Those figures take into account public spending cuts announced to date; less than 25% of which have even been implemented yet. 

We old ‘uns were taught the wisdom of Polonius in Hamlet (“Neither a borrower nor a lender be”). Borrowing is the better option since repayment is the lender’s problem, and the more you borrow, the greater their risk. Lending, especially large sums with no certainty of repayment (which never exists) is parlous. However, “good” debt can actually contribute to the success of a well balanced and diversified asset portfolio. 

For example company debt (Corporate Bonds) can be a fair proposition for small proportions of portfolios (we are currently lukewarm) if the investee company is strong and the yield adequate to compensate for your risk. Government debt (gilts) is the most secure of all, because a sovereign nation such as the UK cannot afford to default on its debt, and is the unique position of being able to print money to repay it. 

Hence our enthusiasm for Index-Linked Gilts issued by the UK and other sovereign states, which offer the “dream” combination of inflation protection and high security. This does not extend to fixed interest Gilts, whose security currently comes with the certainty of losing money over the medium term. In fact near all fixed interest assets are under a cloud at present, and on our watch most of you own little or none.

So debt can be a force for good or ill dependent on selectivity and moderation, and it is total lack of regard to either by governments, banks and public alike that lie behind the global economy’s current ills. We have been wilfully exposed to the wrong side of the credit and debt equation by government and banks, but can at least manage it on a personal level by deploying our assets wisely. That, in a nutshell, is our mission.  

Chickens, turkeys, and eggs were oh-so-subtly smuggled into today’s narrative in deference to Easter. We hope you have a good one.

Austerity Britain will kill wealth by a thousand cuts, with last week’s Budget inflicting early scratches. We will employ all possible means to stem the flow, but damage limitation will be the name of the game. Most austerity measures will be impossible to duck, whereas some can be mitigated. Others are voluntary self inflicted wounds, which must be avoided at all costs. A few notable examples of each case follow. 

The Child Benefits regime has gone from “cliff edge” to plain convoluted, and will hit households with children and a spouse earning over £60,000 pa. In some cases a little “income shifting” will help. But the foremost weapon is pension contributions, on which effective marginal income tax relief of 50 to 72% can be secured (based on 1 to 4 children). If you (or your own children) will be affected, we are here to help. 

The “Granny Tax” will affect many of you (or parents) and places greater emphasis on controlling the form taxable income takes where it falls into the age allowance trap. Our focus will shift to anticipating the impact of frozen allowances on future income. This will be of particular importance in residential care cases. Coupled with estate planning this is at least an area in which we can make a vital difference. 

Rising taxes are prompting more businesses and individuals to form limited companies to reduce their net tax and NIC burdens. The KB Income Control Account is the most tax efficient vehicle available in which to store surplus company capital, often allowing proceeds to be taken without ever having borne a stitch of tax. We do not market our innovations, so you and friends and family have exclusive access. 

Premium Bonds are a con (on 23 million complicit victims) which Government uses to pay down its debts at our expense. Their appeal lies in “secure” backing, the thrill of opening occasional envelopes, and “winning the jackpot” (odds against: 41 billion to 1 per bond). In return they erode the value of our savings by inflation (that old trick again) and pay a paltry 1-1.5% interest – so cleverly referred to as “winnings”. 

A better idea would be to buy a certain bank’s Corporate Bond (guaranteed by you) yielding over 5% and reinvest all the interest over 1.5% in National Lottery tickets (odds: 14 million to 1). No we are not remotely serious but this option, however fatuous, is umpteen times as “sensible”. A much better idea would be to buy Index Linked Gilts with an equivalent yield, and at least protect the value of your capital.

Or would you prefer to own £30,000 of gold, and rely on no one’s “guarantee”? Remember, Government sold it’s (your) gold for less than one sixth its current value – but happily offers you Premium Bonds. The moral of the story is always to do the opposite of what Government does – or encourages you to do. Like taking on debts you cannot possibly ever repay, for example. Yes, treason pays every single time.

You can of course take it as read that we are digesting the “real” Budget, and shall be applying the fruits of our understanding to your affairs on an individual level. We may highlight certain issues in the coming months, where we are either unsure as to whether any of you might be affected, or are aware that most of you will be. As ever we shall proffer solutions rather than just highlight problems. A few snippets follow. 

The proposal to link state pension age to changing longevity presents challenges; planning for retirement at an unknown date places yet additional onus on us to plan our own futures. On the plus side, if you are between 60 and 75, and a non taxpayer, we can help you claim a tax-free lump sum of up to £400 – and then repeat the exercise. We must, however, restrict the opportunity for a wide variety of reasons.  

This is about nothing other than us doing everything in our power to boost your long term wealth. We will only act for you and your friends and family. In all cases a General Wrapper containing a minimum of £20,000 is required, and proceeds must be paid into it. Those you introduce to us must have at least £100,000 invested across one or more Wrappers in a KB Private Client Account before they will qualify.  

A last word on this week’s bun fight. Those consumed by post Budget “are you better off?” headlines might reflect on the fact that to date only 12% of proposed austerity measures have been implemented. There is much more pain to come, and anyone fretting over whether they might be a few pounds worse off is missing the point that Wednesday’s political pantomime was in reality a largely spurious side show. 

And now to next week. It is last knockings for 2011/12 pension and ISA subscriptions and, while we believe we have you all covered for the end of this tax year and the beginning of next, we are trying to avoid last minute heart attacks. So please hit us with any surprises by Friday 30^th, albeit we will do all we can to accommodate them into the following week – but will have no stops left to pull out after 3^rd April. 

This week’s market wobble was down to fears of economic slowdown in China. Meanwhile, crude oil prices refused to budge far from $125, and the Eurozone has gone jolly quiet. Silence is golden but, we fear, not permanent.

While “good for the country” this blatant attempt to repair public finances at the public’s expense is an insult to the intelligence, or maybe just plain desperate. The real value of £1 subscribed to a similar gilt issued nearly 100 years ago is now 2p. Sub-inflation interest and return of capital after a century of erosion anyone? At least rip-off premium bonds “guarantee” your devalued £1 back while you are alive. 

One effect of quantitative easing is that the average gilt repayment period shrinks from 13.7 to 10.7 years; hence the attraction to Georgie of 100 year gilts. These may not see the light of day anyway, because the day after they were mooted Fitch put the UK’s AAA credit rating on “negative watch”, and gilts plummeted. This may, or may not, be the start of the decline we have long expected. Watch this space. 

It is the tacit duty of government to fleece us for as much as we will bear (that is their job) and we elect those who lie most convincingly to the contrary. We should reject almost any investment they “offer” us with the exception of Index Linked Gilts and Certificates, which will at least defray the inflation they will use to solve the problems they created, in the process swindling you out of the future value of your savings.  

Asset planning is war; us and you versus “the rest”. Most foes (banks, etcetera) rob you openly; government more subtly. Public guardian and enemy combined, you are the sole source of its revenue, and it has a license to take your money with one hand (taxes) and cheat you out of more with the other (investments and policy). Mitigating the former and countering the latter continues to lie centre stage of everything we do. 

Another uninspiring topic is life assurance, albeit we maintain full facilities to arrange anything you might need. Potty EU laws come in to effect later this year introducing unisex rates. Women will suffer (?) because they live longer (boo – equal rights for men!) so in future will pay more for cover. At the same time a tax loophole enabling life companies to keep premiums down is being abolished – which will push them up. 

The reverse applies to critical illness and income protection cover. Women make more claims so their premiums are dearer. In this case men will be the victims. The unisex laws and tax changes will soon combine to increase premiums. If your friends or family might need any of the above forms of protection get them to call us (not UKIP) and we will advise. As ever, please ask them to mention your name.  

The sun is shining on financial markets. Economic data coming out the US are rosy. China will apparently have a “soft landing”. Post Greece bad news fatigue sees the Eurozone away from the headlines. Risk assets are on the rise, but gold is not. Bearing in mind the state of the world we are bemused by this euphoria. Since we are in a minority maybe our concerns are misplaced. We hope we are proved wrong.  

Next week we will bring you any news from Tuesday’s “titanic” budget that might affect how you and we should approach things. It could be a very short missive.