Irish Financial Review

Trojan horses go for US President

Frank Conway

Hillary Clinton and Donald Trump, the great 21st Century Trojan horses

Time waits for nobody, least of all those that squander an opportunity.

Eight years ago, Hillary Clinton discovered this to her peril when the upstart junior Senator from Illinois upstaged her with his silver tongue and slick fundraising. This time around, Hillary was taking no chances. Bernie Sanders, the populist Vermont Senator discovered as much.

Hillary Clinton used to be a Republican and Donald Trump a Democrat. Both may so seeds of destruction in the parties they now represent

By most measures, we should be preparing for the first Mrs. President since the foundation of the American Republic. It’s history for America but Mrs. Clinton, its justice! After all, she was the smarter of the Clinton duo all along.

Her opponent is everything but. A man that doesn’t know which way is up. Described by endless former associates as ‘delusional’, Mr. Trump had a good thing going…as long as he was talking to stupid people. He needed stupid people to buy into a stupid message and win the Republican ticket. He won the ticket and then, refused to turn off the stupid-message button.

Instead of pivoting his message for a wider audience, Trump continued on, like some bad comedian that turns up with one bad joke and keeps repeating it until the rotten tomatoes begin raining down.

Attacking hard-working Americans, parents of fallen soldiers, judges and even the American constitution, Trump proved how stupid he really was. Perhaps the best thing to come out of the entire Trump episode was that his ratings tumbled, proving yet again that democracy is powerful and the American electorate really is smart.

Lewandowski, Manafort and now, some other angry guy, Trump has gone busted flush with his endless management team shakeups and policy flip-flops. To top it all off, instead of softening his hate rhetoric, Trump is set to embrace it further; the action of a delusional stupid person.

In an incredible moment of candour, Trump has all but admitted defeat. But in true Trump silliness, he blames Hillary Clinton for his disastrous campaign management citing campaign fraud. What? A full three month BEFORE the election actually takes place, the election is rigged. Surely he means the polls since the election hasn’t taken place yet. Or, maybe Trump is a time traveller…it would explain that hair!

But if Trump is the stupidest candidate ever, it is the Republican Party that is just plain stupid. It has become the Stupid Party.

Ever since the Gingrich push in ’92, US Congress has slipped down a nasty slope of stupidity. Long gone are the days when elected politicians actually went to Washington to do their jobs. Instead, there has been an endless clamour to unearth the next nastiest gun-toting, bible-preaching, climate-change denier Tea Party preacher to emerge from the political wilderness of the traditional ‘red’ states. And this poison stew has finally cooked in the form of Mr. Trump.

Perhaps sensible Republicans will hasten the reorientation of their party, back to the basics, back to issues that really matter once they have digested their fill of Trump stew. Perhaps finally, the Trojan horse that is the Trump candidacy will end the decades of senseless Government shutdowns and legislative impasses orchestrated by irresponsible Republicans. Perhaps the party of Lincoln can become a functioning party again.

But Democrats also have a lot to answer for.

If Hillary Clinton does win in November then Democrats should be wary. After all, it was under the first Clinton Presidency that the all-important repeal of Glass-Steagall Act took place. That was the Act that had kept a tight control over US bank activity since the Great Depression. Repeal of the Act culminated in the near destruction of the global banking system in 2008.

It was also under the first Clinton Presidency that the North American Free Trade Agreement (NAFTA) became law.

Repeal of Glass–Steagall and enactment of NAFTA are at the root cause of voter anxiety across the US today. Mrs. Clinton needs to remember this if she goes on to occupy the White House. If she doesn’t, that anxiety will fester and grow. The big concern is next time around, instead of a stupid candidate in the form of Trump, we could face a much smarter one that actually goes on to win.

If Mrs. Clinton fails to address voter anxiety, she will herald a soul searching within the Democratic Party that will extend across its voter base. After all, the Sanders supporters have not gone away, they are still anxious, they are still passionate and they are still determined.

And, unless they are really stupid, the whole Trump experience is likely to herald reform within the Republican Party. Trump’s legacy, while not originating from the White House could be significant in the long term.

As for Mrs. Clinton, if she becomes a President with a deaf ear and short memory, she might well unlock a level of voter anger that could alienate Sanders supporters permanently and herald the rise of multi party options that gain traction across the US.

2016 might well become the Year of the Trojan horse.

Begg-ing for a pension cartel

By Frank Conway

David Begg, the chair of the Pensions Board is finally getting some pension related airwaves. Unfortunately, he has taken to preaching what has already been preached; not enough people are saving enough money for their long-term financial needs.

David Begg and the Pension Board are preparing the ground for auto-enrolment but so far, they have failed to provide any evidence of what benefits individual citizens will actually receive

By whose measure Mr. Begg?

He probably means well. However, his suggestions that Ireland may need a form of pension cartel in order to “drive down costs” is dangerous. Sure, fees applied to pension funds in Ireland are crazy high but Mr. Begg is probably being inundated with ‘recommendations’ on a daily basis from pension insiders looking to solidify their own positions.

Fees are a real concern and a study by Trinity College Dublin didn’t go far enough in its analysis of the enormous negative impact fees have on investment returns. Having developed an actuarial calculator that examines the impact of fees, I now fully realise the shocking impact fees have on pension fund performance.

I estimate that up to 70% of investment fund growth will be gobbled up by fees of just 3.5%.  To put this into perspective, someone on an annual income of €50,000 (factoring for economic and wage inflation) will be €250,000 – €300,000 WORSE OFF over the lifetime of their investments if they choose a 3.5% fees service over a 1.5% fees service (this is the OCF/TER) calculated over 35 years.

During the height of the recession, when Government targeted the private pension accounts of millions of savers as a way of balancing its books, pension insiders stood by. Billions robbed from diligent savers, families that carefully managed their finances and squeezed together what they could for their long-term financial well-being were punished. It was wrong of the Government but it was a disgrace when so-called pension representative bodies remained silent. I’m highly sceptical of them as a result.

Now, those same pension bodies are back out in force. They appear to be ‘fully supportive’ that ‘something needs to be done’ to ‘correct the pension shortfall’. The narrative is taking on a style reminiscent of the WMD argument put forward by Blair & Co to justify the Iraq invasion of ’03. This massive, coordinated effort is gathering steam which I believe is designed to soften up the public on a new money gathering exercise.

Taking more money from the public is always a tough sell. This is especially true after 8 years of crushing austerity. Government needs support and who better than pension insiders. They know who butters their bread.

Even if mandatory enrolment goes ahead, what Mr. Begg must remember is that his duty of care is to the public. For starters, the focus cannot be on the single issue of fees alone.

The Pensions Authority must clearly explain its case. This must begin with a clear explanation of what the pension ‘crisis’ really is. Next, they must clearly explain how they plan to tackle this ‘crisis’ as well as the basis for any plans drawn up. Most important, through education and using clear, long-term values, the Pension authority must demonstrate the bottom line benefits to citizens. In other words, how much income each individual will receive on a month-by-month basis from their contributions to any new pension scheme recommended by the Pension Authority.

Finally, if smaller advisers are deemed ‘too expensive’ and Mr. Begg sides with a select few providers that promise economies of scale then he and the Pensions Board must explain their case because at present, it is those large providers that are doing the least to offer real value. In fact, at present, the only pension / investment advisers in Ireland that are actively pushing low OCF arrangements are those very advisers Mr. Begg may well orchestrate the demise of. And if this happens, instead of benefitting the citizens of Ireland, Mr. Begg may actually set in motion a system that does the very opposite.

Frank Conway is the founder of MoneyWhizz, the financial literacy initiative

Post Brexit fear drives Bank of England rate decision

The Bank of England today cut UK interest rates to a record low of .25%.

UK to suffer long-term economic stagnation

Mark Carney, Governor of the Bank of England warned of long-term economic uncertainty following Brexit decision.

As concerns mount over the long term impact of the so-called Brexit vote – the decision to leave the EU, the BoE announced a range of measures to stimulate the UK economy. These include £60bn of UK government bond purchases as well as an extra £10bn set aside for the purchase of corporate bonds.

Of greatest concern is the Bank’s announcement of the biggest cut to its growth forecasts since 1992 – the year when the Bank began making growth forecasts.

The BoE reduced its growth forecast from robust 2.3% which it said it expected in May, before the Brexit vote to an anaemic 0.8%.

In a sign of how concerned BoE officials are, it is encouraging banks to keep lending with the announcement of a new Term Funding Scheme which will lend directly to banks at rates close to the new base rate of .25%.The scheme is designed to make sure that lower interest rates are passed on directly to businesses and households.

In a further measure designed to prop up the UK economy and protect against any further deterioration, the Bank will purchase up to £10bn of bonds issued by companies outside the financial sector. However, only companies considered to be ‘contributing to the UK economy’ will be eligible.



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