On Thursday 6th April the Financial Times leader, was headlined “Brown’s tax on trust leaves a bitter taste”. We quote from this as follows:
“But there is almost nothing to be said on the government’s behalf as regards to other issues. The lack of consultation is gratuitous and offensive. The government has been talking to professional bodies about reforming trust law since December 2003, but did not see fit to put this tax move on the agendas. Hasty meetings this week are no substitute for considered discussion with professionals who may have a vested interest but who also have the expertise to advise about possibly unintended consequential effects.
Then there is the retrospection. The opportunity, available until April 2008, to change the rules of existing trusts to enable them to escape the periodic charge does not alter this. Individuals who have made reasonable plans for their personal affairs, perhaps over decades, now find those plans disrupted. The government is entitled to raise money through inheritance tax and to crack down on tax avoidance. At the same time, individuals have a right to be able to plan for the long term on the basis of the tax regime in place at the time of their decisions”.
How could any reasonable citizen disagree with these sentiments and how could anyone have good thoughts about a Chancellor who would wish to be Prime Minister, but will, whilst waiting in his size 11 boots, without regard to the consequences, just kick established principles over like a bullying child, spoiling another’s special birthday party. And for no better reason than enjoying the pain inflicted.
As yet the Finance Act has not been published and we will know more then. There will be considerable, last minute discussions taking place and to some extent common sense should prevail and those unintended consequences of this vindictive legislation be at least partly remedied. For the time being millions of people, most of whom are not super-wealthy, and who have done no more than sensibly plan in accordance with the prevailing legislation, have to wait to see if their arrangements can continue. For the time being the industry advice is do nothing, to which we concur.
It is quite clear, and we have already made much of it, that gold is in a sustainable bull market and that the price will rise very considerably yet. Assuming that is right and bearing in mind that gold is considered to be the ultimate hedge against almost any type of uncertainty, then it is simple to deduce that there is out there a great deal of uncertainty and a lack of trust in the establishment, who, in ways unique of today, have managed to earn our extreme disapproval – did anyone say Iraq?
If gold is to go to dizzy levels, then other investment markets will be disadvantaged and volatility will be order for the day. The primary bear market for most of the developed world’s stock markets that commenced at the end of 1999 will resume its downtrend and if this is a bear market of the sort we expect it to be, then prices will reach significant new lows.
We have no special crystal ball, we just do the work and trust our instincts. Like a gazelle sniffing the air we sense great danger, which will in investment terms be unpleasant for the majority, but with it will come great opportunity. A good example has been detailed in this letter about the potential value of the MLG&G Fund.
We cannot at the same time be bullish for gold and sanguine about the global economy or the US dollar. We are not sanguine about the most important currency in the world, we are downright apprehensive, even scared. What will the inexperienced Ben Bernanke do when confronted by the plunging dollar. We expect he will panic and within that panic we see huge investment opportunity.
From an investment management point of view it is imperative to have a process that embodies change. We have quoted many times the words of Machavelli “He who adjusts his policy to the times prospers”. Portfolios need to be managed in such a way that in a short space of time changes can be made. Those in the investment industry who consider such concerns as being inappropriate or unnecessary will, if it happens, be totally unprepared and pay a terrible price sadly with other people’s money.
By John Robson & Andrew Selsby at RH Asset Management Limited, as published in the Onassis Newsletter, a fortnightly newsletter that gives insight into the investment markets.
For more from RHAM, visit https://www.rhasset.co.uk/