A LOOK BACK AT 2010

Before we do so let's just go back two years to the end of 2008. That was the year when very rich investors became just rich, when the rich ones became just average and when average investors became poor. 2009 saw a sharp recovery from the abyss and 2010 for most people was a further year of repair and consolidation. Some damage still remains from the 2008 meltdown and will do so for some years to come, but at least we can say that 2010 was not a bad year from most investors' point of view.

Savings plans will probably see the biggest dips in valuations when markets fall but this must be seen as a positive for the long term as current contributions will be buying in effectively at a discount. Gains should be consolidated in the latter stages of the plans; this is when they should be closely monitored. If the opportunity to consolidate gains during the later years has been missed the plan should not be encashed on maturity but should be held until such time as markets are high again.

DEVELOPMENTS AFFECTING DISTRESSED FUNDS

The good news is that it is now possible to encash the bulk of holdings in Momentum All Weather and Symphony Global Alternative Strategies, hedge funds that had been frozen since the 2008 meltdown. A small portion of the funds containing still illiquid assets will have to be retained within portfolios as 'Delayed Redemption Shares' but around 90% of the funds can now be reinvested. Clients who had held these funds for a number of years will have seen modest gains which may serve as some compensation for the anxiety of not being able to access them.

Another investment that hit the kerb, Foundations Capital, has now had a receiver appointed by Barclays to oversee the sale of assets to recoup its loan, which is estimated to be in the region of $12 million. Foundations management has assured us that the investment assets they hold are more than enough to cover the loan. The only issue is the time it will take to liquidate the assets. Foundations estimate this to be around six months. If this is correct and the assets raise at least enough to repay the loan then policies held as collateral can be released at no loss. In fairness to Foundations it has to be said that the situation arose as a result of the banking crisis. The freezing of loan funds crippled the program as its existence depended on the raising of finance against collateral provided by clients. Hopefully there will be a favorable outcome to this one too.

LOOKING AHEAD TO 2011

The global picture looks somewhat challenging. Job data released last Friday (Jan 7th) was encouraging but less than analysts had forecast. The US and China are accusing each other of manipulating the currency markets, the Euro is in a struggle for survival as several nations teeter on the verge of bankruptcy and the UK, while not entangled with the Euro, has its own problems as it pushes through austerity measures to reduce its own massive debts. What can the poor small investor (or even large investor!) do in face of so many uncertainties? Put all his money in the bank? Hardly a solution with risk-free interest rates hovering around one percent or less! Especially since cash in most major currencies is likely to devalue as more and more money is printed. But it still as vital as always to maintain healthy cash reserves. After all, it was the very lack of cash that drove many institutions, including banks themselves, into insolvency in 2008.

If your cash position is healthy keep on investing in a wide range of assets. Maintain those savings plans even if they appear to languish in the early years. If you have a healthy and diverse portfolio of assets you can afford to look 'outside the box' at asset classes that have the potential to produce 20% per annum or more. Gold is one possibility. It has already gained that much this year and is now projected (by Castlestone Management) to reach $1,600 an ounce by end-2011 and $2,000 by end-2012 in the event of fresh shocks to the financial system. Forestry offers another opportunity with investment in trees or related funds projecting returns of 10% to 20% over periods ranging from three to seven years. Then there is the litigation fund with secured returns of 15% pa plus the possibility of 'win' bonuses. The latest issue has now closed and we are not expecting another until at least February. Make sure your interest is known if this is the case as issues can be fully subscribed very quickly.

The best advice as always is to spread your investments. Never put all or most of your eggs in one basket.

May 2011 prove a happy, healthy and prosperous year for you!

Eric Jordan, Bangkok, 10. January 2011
Please note this news update is primarily for information only for clients of the PPI. If you are not a client please seek professional advice before making any investment decisions.