February 2008 Archives
I said in my last post that 'I quite like reading the news'. Sure, I do, but I'm not over the moon about it. Primarily it worries me about how often journalists get casual about the real facts. Most people over here say that they 'don't believe what they read in the papers' but I reckon that is has some kind of influence on people's opinions. I mean, how much would people really care about the the 'Credit Crunch' unless that term had been made up by the media? I've noticed that a recent survey by Nationwide has said that consumer confidence in Britain is at its lowest level since the survey began in 2004. Now The relationship between the two things is difficult to correlate, but I'm pretty sure that negative attitudes get shaped by words such as 'Credit Crunch' being bandied around at every opportunity.
It's not just the Credit Crunch, or indeed the overuse of the term, that has made consumers worried either. Sometimes journalists are incredibly liberal in their summaries, especially when they do it quickly. Take this from the BBC, for instance: (It's about people being worried about house price falls)
'As a result, house prices are falling, interest rates are still relatively high and people are feeling the pinch.'
Now I wonder about the first point. Prices always fluctuate, and not much always goes up and up and up permanently. You'll always get someone who'll be willing to sell something for less than it's actually worth according to the rest of the market. Practices such as this can drive prices down by themselves - it's effectively why trading on the stock market works.
Different sources will also tell you different things about property prices, because no one has a complete set of data. A lender like the Halifax releases statistics based on the information that it holds in its lending database, so it will be different from another lender, like Nationwide. The Halifax will tell you that house prices rose in December, while Nationwide will say that they fell, the complete averages - what every lender says happened - is not revealed in the media.
In reality overall house price fluctuations are difficult to nail down at the moment. If you've been a homeowner for a year or more, then there's no reason to panic - your home has risen in value much more than inflation, so you've made money in real terms. In total, house price inflation in 2007 was 4.2% according to Nationwide (although other sources will tell you different) so this double the inflation rate - you made money on your investment.
Rather than taking what the media says and believing that house prices are 'falling' I'd read from numerous original sources that they're fluctuating. According to the Halifax, this is evidence of a 'subdued' market. I guess it's about time house prices calmed down a bit in the UK, but you'll find that across Europe, they've risen pretty drastically over the same time period.
I'm not a homeowner, and I'm not absolutely sure about buying in the UK unless I get totally settled here, but a friend was looking for mortgages and ended up taking one out with Alliance and Leicester, and he said it was the best he found.
There are plenty of semi compulsory events during the year that mean you'll need to fork out for someone. Not that I'm a total miser or anything, but yearly events can come around when you haven't really thought about them and then just sting your wallet. Of course there's Christmas, friends and relatives birthdays, Valentine's Day, Mother's Day, Father's Day... all of these days will probably cost you something, whether it's a gift or travel expenses to get home.
I recently thought that if I was in a relationship then this month could end up just as expensive as Christmas. Relationship's are supposed to be worth their weight in gold, but I'm pretty happy about not having to consider the cost of Valentine's Day on my wallet. I recently read that people in a relationship spend about £750 a year on their partners, and February comes as one of the most costly months - along with December. People are prepared to fork out big sums for their Valentine's gifts, especially on traditional gifts like flowers, chocolate and lingerie, all of which see sales shoot up around this time of year.
How you afford the constant stream of gift giving is, however, something that not all of us give enough consideration to. A survey by Moneyexpert found that people could save as much as £547 a year if they changed their accounts to the five best financial products. Recently I've noticed one of the best ways to save is through getting one of Alliance and Leicester's current accounts. It's got an interest free overdraft for twelve months (which can be agreed to be up to £2500) - you can also get 8.5% AER for balances up to £2,500. Seeing as I don't have a whole lot of savings, I'd say this is pretty much incredible.
There's been a big growth in flights over to the US from Britain over the last few years, with airports like Bristol offering flights. The number of Brits heading across the pond has also been kept steady as happy shoppers want to make the most of shopping trips to New York where their pounds are worth more than ever.
This all sounds good for the healthy relationship between the States and the United Kingdom, and it's definitely had a positive effect on tourism. New York, for obvious reasons, suffered a huge downturn after 9/11, but it's since reinvented itself and enjoyed a massive influx of visitor numbers.
However, things aren't looking too rosy for the future, after yet another draconian 'national security' proposal by the Bush administration. The latest measure by Dubya is to press all of the governments in the European Union - that's 27 of them - to sign up for a a number of security measures for travel across the pond, including putting armed guards on all flights between Europe and the US by US airlines.
I read an article in the Guardian about all of this, and I think it's pretty unnecessary. The EU already supplies the US authorities with 19 items of information on every traveller flying from the US, now they want more, including data on people who are allowed beyond departure barriers to help elderly young, or ill passengers to board aircraft flying to America, or even over its airspace.
I think it's increasingly sad that such measures are brought in, because it's not exactly clear if they do anything particularly useful other than make America look increasingly isolationist, fussy and, to some, bordering on totalitarian. It seems particularly strange seeing as the attacks of 9/11 were carried out from flights within the US, not external flights. Fair enough, I get that the authorities want to know who's coming into the country, but there's got to be other ways other than totally encroaching on everyone's privacy, guilty or not.
I hope that the latest measure's don't discourage visitors from the UK heading over to the US. One thing's for sure, you'll be missing out on some great travel adventures when you go. Last time I went back I booked some cheap flights to New York from comparison website - Cheap Flights. I also like Travelzoo a lot, it gets some of the best bargains from the internet, including cheap flights, and sends them to you in a weekly top 20 bargains email.
So then, another rate cut on Thursday takes the UK interest rates down to 5.25% from February. There was a similar quarter % cut in December, but the Bank of England refused to panic in January and slash rates - unlike the Fed back home.
Stock market turmoil seemed to force the Federal Reserve to cut its target rate substantially last month. It now sits at 3%, although just one month prior it had been at 4.25%. In the short term, a little more positivity has returned to the world markets, but they haven't made a full recovery to pre January levels, having endured a terrible start to the year. Things look as though they might get ugly again soon as well, with stock markets regularly going into the red this month. The Dow Jones has a massive loss on Tuesday (5th) and it makes me a little worried about things.
If, like me, you've got some stocks, then you might be looking for a good moment to pull the plug. I know I am! I want to have my money out for about this time next year, and with things being forecasted to be bad in 2008, I'm not feeling too good about the whole venture. I bought some in mining company Rio Tinto after they received an offer from BHP in November, and it's been quite a roller coaster ever since! Basically, if my stocks break even again, then I'm out of the market. I kind of wish I'd just stuck my savings into an ISA or something for the longer term, but I'll always say that in retrospect.
While the interest rate cuts will probably help the stock market momentarily, I'm sure it'll also be music to the ears of many people who own property over here. Mortgage rates have been going up with interest rate rises over the last few years, and with house prices getting a bit ridiculous lots of people are paying more than they can afford. It also means that loans will probably get cheaper, so things might get rosier for those with good credit histories who are likely to avoid the worst of the Credit Crunch. Alliance and Leicester offer some pretty cheap loans, so I'll be keeping my eyes open if their prices go down further over the next couple of months.
Despite the Credit Crunch, it's seeming as though Britain's debt mountain is continuing to grow. I've seen that personal debt in the UK has soared to £1.3 trillion recently, which seems pretty big in a nation of around 60 million inhabitants. In fact, it's £21,666.66 per person, including children! Over 80% of the debt is accounted for by mortgages, which is understandable seeing as property prices actually make me feel quite ill. If you thought house prices in the US were high before all the subprime issues, then you should check them out here. Most lenders say that the average residential property price in the UK sits at about £200,000, that's near enough $400,000 at the moment!
The crazy house prices mean that most people have to borrow eight to ten times their annual salary to make a house purchase, and banks have continued to dish out the mortgages - although the country is seeing something of a slowdown. I read a paper from PwC, the big accountancy firm, that predicts that there will be record numbers of insolvencies in the country this year. Not many people seem to think it will be anywhere near as bad as the subprime crisis back home, but things are definitely going to get a little sticky. For starters, 1.4 million people will be coming off their low fixed rate mortgages later in the year and their monthly outgoings will rise by an average of £140 unless they refinance. For people who are already on the fine line when it comes to making ends meet, it seems likely that this will tip them over the edge.
The good thing is, I had got insurance, so I got all my money back within a couple of weeks of returning to London. I took the travel insurance out with a company called Essential Travel, and chose some cover that protected this kind of thing for the trip. There are other options that cover for just medical expenses, but I think taking cover out to protect you against loss or theft is pretty much essential. I've got a few trips this year, so I thought I'd take out some annual cover with AA travel insurance which best suited my needs for my trips. It was only about £35. I always think to myself when I'm getting a travel insurance quote that I've actually kind of profited from taking it. Essential paid me £70, and the policies I've taken out since haven't added up to that sum. I guess Essential missed out by having me as a customer, just don't miss out the insurance, or you might really miss out.
As of next year you can put a total of £7200 in an ISA, and up to £3600 of this allowance can be in cash, while the rest can be made up from stocks and share options. The two parts are separated and can be taken out with different providers if you want to. This is a pretty cool new feature of the new ISA rules that are coming in next year. It means that you can take out a high interest cash ISA with someone like Icesave, who offer 6.1 % (variable) AER, and then shop around for the best stocks and shares or index tracking ISAs out there. I had a look at ISAs from Alliance and Leicester and they’ve got plenty of different products to suit long term investors, with products that track many of the world’s share markets and indexes.
I think these are pretty good ways to save, and they’ve got definite advantages over savings accounts because you don’t pay tax. I also like the way that they can provide a sort of introduction into the stock market, which seems to baffle most people who don’t work in finance. In the long term, I particularly like the idea of stocks, because they normally outperform cash. Take a look at investments from Legal and General to see more about investment tracking funds. Otherwise, I recommend reading Benjamin Graham’s The Intelligent Investor, or looking it up on Wikipedia.
Anyone who's seen the original Jaws film might feel a little uneasy about getting into a cage in Great White Shark territory, particularly as Jaws busted Richard Dreyfuss' cage. However, I was assured that the cages are pretty much indestructible, so I wouldn't need to go and get a new life insurance policy straight away.
We headed to Gansbaai at about 8.00 am, which took about half an hour from our Cape Town hotel. We had a bit of a nervous breakfast and a briefing, then we boarded the boat and headed to the dive spot. The place wasn't exactly brimming with sharks, but the apprehension was kind of making me hope that they wouldn't turn up, despite paying all that money. However, after about an hour, a couple of them did show up, attracted by all the chum that had been thrown into the water by the crew.
Half an hour later I was in a wetsuit waiting for my turn to get into the cage, nearly feinting with fear as huge dark shapes circled out boat, which seemed pitifully small. I guess I was just apprehensive about getting into the cage, because once I was in there and got my head underwater the nerves totally stopped. I just wanted to see the beasts. It was a little murky at first, and I couldn't really see much, but then someone pointed towards a huge cigar like shape with fins out to the left of us. It was just cruising slowly around before turning and towards us. Even then though, it didn't look like it was in attack mode. It just swam up towards the cage. Maybe showing it's full glory about three metres in front of us, before circling around us slowly.
I saw three sharks while I was in the water, which was about thirty minutes or so. Two of them seemed pretty relaxed and just wanted to know what was going on in their territory. The third one was much more inquisitive, and gave the cage a knock a couple of times, which was a little disconcerting, but I was pretty much in too much awe of the beasts to be too scared about them.
When my time was up, and I was back on the deck, I wasn't exactly desperate to go in for the second time, but I felt like I was on a high for the rest of the day. A couple of days later I was still thinking about the huge shapes floating around in the blue, occasionally taking a closer look at us. Probably the coolest thing I've ever done. Take a look at the White Shark Diving website for more. I’ll stick some photos up when I can get my home PC running again, or I remember to bring my camera into work!
However, it appears that’s not the full story. Disgruntled customers contacted the BBC website and expressed their anger at having their credit withdrawn, and it turns out that many were not high risk. In fact, some customers had gleaming credit histories, and frequently paid off the whole balance of their card. One Trevor Smith, of Nottingham, complained, ‘Egg may be cancelling high-risk customers, but they are also apparently ditching those, like me, who pay no interest because we are good creditors! It’s disgusting that they are making its just the bad ones who are being dropped.’
It doesn’t look pretty, and it’s pretty bad PR on the part of Egg, but (regrettably) I don’t think many people can do too much about it. Banks in the UK can effectively choose whenever they please if they don’t want to lend to people, whether you’re high risk or you’re just not making them enough money, which seems to be the case here.
Personally, I’m not really bothered by all of this, because I don’t use Egg. As a keen traveler, I think American Express credit cards have the most benefits. Somehow, I bluffed on my credit card application and got Platinum card a while ago (but I earn just enough money to qualify now). It’s pretty good because it arranges currency exchange on your card, and guarantees that you won’t find a better deal on the high street. I do pay it off all the time though; I’m just hoping this doesn’t get my card withdrawn!
I quite like reading the news. It normally shows you some pretty good stuff, but when I see a source quoted in the article I always want to find out more. Most recently I checked out the BBC saying that UK borrowing was worst in 10 years, and it quoted someone from Capital Economics. I did a search for them on Google and found they had some sample papers that you can read. One of them, The Housing Market Analyst, was really interesting, and it gave me way more facts than any news story could.
The report's subtitle is 'The end of the housing market boom is in sight' and it made predictions for 2007 and beyond. Now I've been reading quite a few things on what people are saying about the current British property market, and it looks like it's reached a ceiling because things have got way too expensive. Judging from what most people are saying (I wouldn't want to make my own conclusions yet!) things look like they're going to flatten out. I read from the Motley Fool's David Kuo that they're going to collapse by 20%, but this seems pretty ridiculous judging from what everyone else is saying. Capital Economics said that 'demand (is) set to cool, but not collapse' in 2007. It wasn't far wrong, because price growth was stemmed in the latter half of 2007, and it seems to agree with almost everyone else about the coming year. In the long term, it says, things are likely to decline, although not by much. I guess if you've made wild profits out of the housing boom, then you can't complain, but I feel sorry for the first time buyers who first got their own place in 2007, and consequently look as though they won't get much out of it.
