STOCK MARKETS CONTINUE TO TUMBLE

Last week saw a fall of between 3% and 5% in most major markets. With no clear indication of a lasting solution to Europe's debt crisis investors are steering clear of stock and bond markets. The bond ratings of several European countries have fallen to junk status and the future of the Euro is looking very uncertain. The impact of the crisis is being felt way beyond Europe due to the global exposure to European banks and assets. Asia is unlikely to escape the fallout this time even though it does not bear responsibility for the excesses of the West that have led to the crisis.

HOW ARE SAVINGS PLANS AND PORTFOLIOS AFFECTED?

Where savings plans are concerned the troubled markets are most obviously reflected in depressed valuations. As I have said before, this should not be an issue for the long term investor provided that contributions are maintained during depressed periods like the present. If you have a plan that is close to maturity and it is mainly invested in stock market funds it would be wise to hold on to it until markets recover. On the surface it would seem this could be a long time but if you look back on the last crisis that broke in 2008 people felt the same then yet from March 2009 to July 2010 the US S&P 500 index rose 100%! Of course it has fallen again since then but it illustrates how fickle and unpredictable the markets can be.

Where portfolios are concerned the fall in valuations will not be as drastic since most portfolios are well diversified with hedge funds and commodities like gold and other precious metals which have partly offset the falls in stock markets. Going forward however it would be wise to review strategy particularly in relation to balanced funds. These have provided some protection against market falls but the upside during recoveries has been limited. A more effective strategy for the future may be to hold increased cash reserves outside the portfolio but to raise the risk level within the portfolio and incorporate more alternative funds, particularly those that pay regular returns and are not correlated with stock markets. Over the past two years a number of new funds have emerged that fall into this category. Most of them are capable of paying double-digit returns with only a modest degree of downside risk. Keep in mind of course that there is risk in every investment, including bank accounts! The best safeguard is diversification.

Please let me know if you wish to review your portfolio strategy on these lines.

ARGENTUM NEWS

The litigation fund continues to provide the brightest prospect for positive returns amidst the gloom of conventional asset classes.

Rights Issue - option to extend All those who invested in the Rights Issue last December should have received a notification on their portfolio tracker as to the options open to them this December when the issue expires. Briefly the options are:

1. Redeem in full, which will mean a 45% profit over 12 months on the original investment.
2. Redeem one of the two cases and receive ongoing interest at 12% and if the remaining case wins collect a win bonus of 25% of the money invested in the case.
3. Rollover in full for another 12 months and receive enhanced interest at 14% and win bonuses of 40% of money invested in a successful case or cases.

The above returns are possible as new favorable terms have been negotiated in the large Middle East arbitration case in anticipation of a successful outcome.

Latest issue of Units The current issue of Units, unlike the Notes that have been issued, invest directly into the profits of Argentum's new listed company Buttonwood. The profits will be derived from at least 17 cases, some of them well advanced, with an estimated total anticipated claim value in excess of GBP 1 billion. Capital as usual will be protected; interest will be at the rate of 8% if paid 6-monthly or 9% if paid annually. Win bonuses will amount to an equal share with other Unit holders of 25% of net profits subject to a 100% cap on gains on the original investment (not including interest). If and when the cap is reached both capital, interest and bonuses outstanding will be paid out and the investment will cease. It can be terminated in any event after 2 years or carry on to the end of the third year. Only 200 Units of GBP25,000 or USD 40,000 are being issued.

Footnote Investec Bank has become the first British bank to enter the litigation funding market according to the Times. It has already invested GBP5 million into civil cases. A clear sign that the bigger players are starting to move in and that the window of opportunity for retail investors may not remain open indefinitely.

Colin Bloodworth