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Time To Get Out Of Money?

Penelope Wise
03 May, 2009

What's a girl to do? Men don't give you things any more since they stopped getting their fat bonuses; that is unless you're lucky enough to have snared a Russian billionaire, and even those are in short supply nowadays.

I've saved up enough from the days of diamonds and roses though to invest it to get a reasonable income, the problem is, in what? You can forget about the banks, interest rates are so low I'd be down to having champagne only once a day. And hedge funds have turned into a black hole.

So let's try to be rational, and look at the economic background. Virtually every country there is has put itself alarmingly into hock, and it's not going to get any better for the foreseeable because unemployment is getting worse by the day, which means that government expenses go up while the tax take goes down. Itaque (you didn't know I could speak Latin, did you? I was quite a blue stocking when I were a lass): taxes are going to go up. Also there is going to be inflation.

That is actually good news for companies. Why? Well, silly, because they are going to be able to sit on their hands and wait for the real cost of wages to go down - wage-slaves aren't going to have any bargaining power for years to come because there aren't any other jobs out there to go to, so they're desperate to hold on to the ones they've got. And while their wages stay static, goods and services will cost more, meaning that companies will get to keep a higher proportion of their inflating incomes. So it all adds up to buying equities.

The only fly in that ointment is that, with economies flat or declining, companies may be over-provided with productive facilities. So, look either for companies in sectors which are more or less immune to the economic cycle, or service providers with low fixed costs and a flexible work-force. Business publishers would be an example of the former, and Internet brokerages an example of the latter.

You may object that taxation is going to hit businesses just as hard as ordinary folk; but I don't think so. Any country that increases its corporation tax rate is going to see an immediate exodus of companies to more favourable jurisdictions. In fact, companies are learning to do that even without tax increases. The UK's tax regime is now so unfavourable to companies with major international involvement that the steady trickle of deserting plcs is going to turn into a flood. The shares of Informa plc rose 14% last week when it announced it was going to become tax-resident in Switzerland.

Even worse is going to happen in the USA, from the tax-collector's perspective: the Democrats are fielding swathes of inimical corporate legislation, lightly disguised by a smoke-screen of anti-tax-haven propaganda, and they're about to get a filibuster-proof majority in the Senate. The option for US companies to shelter much of their international income overseas is going to disappear in short order, leaving them with only one option - to quit. I will particularly look for US multinationals that have low exposure in the US itself, and back them to make the right, tax-saving choice. And then I'm going to order another six cases of Bolly.


About the Author

Penelope Wise

Penny Wise but not Pound Foolish! But remember: I am not offering investment advice. My comments are just for your general information; I do not recommend investments, and you should take professional advice before entering any investment contract.


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