Investment Warning Level Amber

Investment Warning Amber Level
Ashley Clark, Director - 17th May 2012

Our Investment Warning Status 'Amber' - European Contagion

On the 8th March 2012 we issued an Amber Investment Alert for Greece on default/euro exit risk. This is now starting to unravel. As the situation in Greece develops, we believe there is now a real risk of European contagion, i.e. spreading throughout Europe.

We have hardly any lump sum clients invested in Europe at present and only a small number that save regularly into European funds to buy lots of high risk units at cheaper prices.

Our thoughts on this latest Greek and European Crisis

We still think, and have always thought, that Greece will leave the Euro but remain in Europe.
We believe the exit of Greece is already priced into markets and highly likely, i.e. investors are expecting Greece to leave. However, investors are nervous and many have been profit taking over the last few days, hence markets falling.
The knock on effect really comes if Greece refuses to honour its debts or in contagion i.e. spreading across Europe which could cost an estimated €1 Trillion (that's 1,000 Billion Euro).
Greece is such a small part of the EU economy, representing just 2.2% of Europe's GDP and 4% of Europe's debt mountain, so we believe the exit of Greece itself will have little impact on the stability of the Euro.
We predict that Greece will return to what it was, a cheap holiday destination for many and become self sufficient again for much of its food goods and services whilst it repays Euro debt over the coming years.

THIS HAS NEVER HAPPENED BEFORE SO NO ONE REALLY KNOWS WHAT WILL HAPPEN.

What we expect over the coming months - CONTAGION - i.e. the spread of Euro debt risk worries to bigger economies such as Spain and Italy. Hence this Amber Alert. Both Spain and Italy are already in the danger zone for borrowing (i.e. government bonds) with interest rates at or around 6%. Spain's banks are under pressure with the Spanish Government this week offering cheap loans to ensure banks have enough cash in reserve. Italy had 26 banks downgraded this week by credit ratings agency Moody's.

Expect a small run on the Euro as people head for US Dollar and UK Sterling currency.
US Bond and UK Gilt demand is up i.e. demand to lend money to us and Gilt Yields Down - So your Annuites/Pensions Rates will fall (if you plan to retire this year).
Gold and precious metals prices will rise again after there recent falls.
Mortgage Rates will increase this year as strain on banks takes its toll with Euro debts written down (i.e. money that banks are owed devalued) and also pressure from European Regulators for banks to become financially stronger i.e. re-capitalise.

THE EURO WILL GO DOWN BECAUSE OF THE UNKNOWN, SO IF YOU HAVE EUROS IN BANK ACCOUNTS, WE SUGGEST YOU REDUCE EXPOSURE BY MOVING TO STERLING OR DOLLAR

What Should You Do Today?

High Risk Investors (around +/30% Risk Profile)

For regular savers, you should start investing in European Funds today.
For lump sum investors, invest in European funds after any Greek exit, you may see headlines like "markets have biggest fall today". We are not saying they will fall, as German economic growth is propping markets up today up but speculators and "profit takers" may drive markets down further. Most of our clients are out of lump sum Europe, but it may be close to the time to go back into markets. FTSE is at 5,405 at the time of writing, if you see FTSE fall to 5,000 - then that is the time to invest in UK Equity and European Equity Funds.

Medium Risk (around +/- 20% Risk Profile)

You are unlikely to be in European Funds anyway, but if you are then only pay regular payments and move lump sums out. If you do move a lump sum, consider US particularly and Far East Funds and now UK as markets have fallen over the last few days and now is a good time to enter..

Low Risk (around +/- 10% pa Risk Profile)

You should not have any European Funds and if you are on service we would have suggested to come away from these funds a couple of years ago. We recommend that you consider Defensive Managed Funds, Cautious Managed Funds, Index Linked Gilt Funds and Corporate Bond Funds.

Currency - Sell Euro Now - In short, do not hold too much in Euro for the time being. Transfer your money to Sterling and US Dollar Accounts.
Mortgages - Fixed Rates - If you are on a tracker rate that ends this year or already on standard variable rates, talk to your mortgage lender now about fixed rates or capped rates.

THIS INVESTMENT ALERT DOES NOT CONSTITUTE INVESTMENT ADVICE BUT IS A CALL TO TAKE ACTION IF YOU WANT TO,
BASED ON OUR VIEWS:

CONTACT US FOR DETAILS ON HOW TO SWITCH FUNDS. YOU MUST CONTACT US IF YOU WANT US TO TAKE ACTION FOR YOU, OR YOU CAN CALL YOUR INVESTMENT COMPANY DIRECTLY.

IF YOU HAVE ALREADY COMPLETED BLANK SWITCH FORMS (many Gold and Platinum Clients have) - CONTACT US AND CONFIRM YOUR PREFERRED OPTION BELOW