Money Blog: Did the Public See that the FTSE Would Fall Before the Politicians?
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Home » Money Blog » Recession Watch » Did the Public See that the FTSE Would Fall Before the Politicians?
Did the Public See that the FTSE Would Fall Before the Politicians?
By Nic Cicutti
Oct 10, 11:12 AM
Personal finance journalists like me, who have been in this game for many years, like to pretend that we have our fingers on the button.
We know what Hank Paulson, the US Treasury Secretary, is likely to do before he even thinks it. We have a hotline to Chancellor Alistair Darling’s office, allowing us to explain instantly what’s happening to our money and what to do about it.
So we go around telling people glibly not to panic, or that the current market is a “buying opportunity”. We even expect some of them to believe us.
The reality today, of course, is very different. Sometimes it takes people with less formal knowledge but more insight to truly understand what is actually taking place.
As those of you who read this regular blog will know, my partner and I have just sold our home in the New Forest. Until we buy a new home together, we took up the invitation, a little over two weeks ago, to move in with my mother-in-law and her partner.
To thank her for putting us up, we took them both out for a swanky meal at a local restaurant.
During our meal, my mother-in-law mentioned that she had just sold up several years’ worth of equity ISAs because she no believes in the potential for a stock market recovery.
For about five minutes, I tried to reassure her, using all the standard arguments that any so-called financial “expert” would recognise instantly.
If she sold my mother-in-law would be crystallising her losses at a time when she didn’t actually need the money, plus she would be losing her ISA allowance, which was a shame as she might need to take income from her funds in order to boost her pension at some stage.
I pointed out that in the past, sharp falls in the market have often been accompanied by equally rapid recoveries that returned shares back or close to the position they had been in only a few weeks or months earlier. My mother-in-law was unmoved.
Finally, I played my ace card: Anthony Bolton, the hugely respected financial guru and president of investment at Fidelity International, had just called the bottom of the market crash, saying: “I would say shares are as cheap as I’ve seen them in my lifetime of managing money, in some sectors.
“So, although I haven’t invested in the market for several years, I put my own money in two weeks ago, and I put some more in on Tuesday [30 September] – in funds, and more in developed than emerging markets.” His words, not mine.
My mother-in-law didn’t bat an eyelid. Since that conversation, she has sold off her entire portfolio of ISAs.
Meanwhile, the FTSE 100 share index of leading companies, which stood at 4,800 at the time Bolton went back into the market, has fallen to about 4,000 points as I write, down 20% in barely 10 days.
Last week, as share prices continued to fall, my mother-in-law asked me whether I thought that she ought to be taking all her savings out of her bank.
“Why would you want to do that?” I asked incredulously. “Because I don’t believe my money is safe there either,” she replied. Since she spoke, Chancellor Alistair Darling has been forced to propose a £400bn bailout of UK banks, after several days in which some of them faced imminent collapse.
For the first time in my life I’ve been force to consider switching my savings out of the single account they are held in and dividing it up into several smaller parcels of money. Just to be on the safe side, you understand.
The other night, my mother-in-law suggested that it might be an idea if we applied for a patch of land on a local allotment, so that we could grow our own food if everything falls off the edge of a cliff.
I’ve put my foot down this time: there is no way I am going to break my back by digging up rows of spuds, carrots and turnips.
Still, she’s been right more often than the experts in the past few weeks. Maybe Fidelity ought to offer her a job – and maybe I need to go and buy a spade…
User Comments
CHRIS KILPATRICK 10 October 2008, 12:42
If you can get hold of an allotment well done. I think you’ll find there are long waiting lists. Even trying to find a plot of redundant agricultural land from local land owners and farmers is very difficult. I know, I’ve been trying. So, yes, some of the public did see something coming, but, perhaps, not quite so extreme. The bank of England had been saying the housing market, on which so much of our ecomony depends, was over heating. Interst rates were maintained at historically, relatively, low rates but no one asked questions or did anything about the imprudent lending policies and treasury behaviour of major banks, especially those so dependent on the mortgage market. As a bank, lending 177% of your total deposits is suicidal, and risked depositer’s funds (real money, hard earned and long saved). I admire your mother-in-law’s foresight; let’s get rid of the whizz kids and bring back some greyer heads. Banks are not retailers, they are custodians of customers’ savings and that should have been and should be their first consideration. Boring perhaps but safer and more equitable in the long run.
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