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July 25 2011

Gold, fine wine, art or under the bed: what's the safest place for your cash?

In uncertain economic times, alarmed investors want to minimise their risks. We take a look at the options

For City traders digesting the news via their terminals today, the language had a constant ring.

"Swiss franc leaps as investors seek havens," screamed one story. "Investors poured into perceived safe-haven assets, driving gold to a record high," stated another, before adding: "US government bonds failed to benefit from their usual safe-haven status after the weekend breakdown in talks fuelled investor anxiety over treasury holdings."

It is a small sample but the message seems clear. Spooked investors, unsure of where to put their cash, are looking for places where they can be confident it will not suddenly vanish. So what are the safest investments – and can they really be risk-free?

Swiss franc

Sometimes you can look desirable just because the weaknesses of those around you are so stark. That was true of successors to Robert Green in the England goal, and it is now proving to be the case with the Swiss franc, which has appreciated by about 15% against the dollar this year. While some argue that the Swiss National Bank (SNB) will have to step in, others believe it is powerless to dampen demand.

In a research note, Simon Smith, chief economist at the foreign exchange specialists FXPro, wrote: "Switzerland is not the only country in decent fiscal shape but, apart from the Aussie dollar, it is the most liquid alternative to the US dollar, euro, yen and sterling, all of which have sovereign fiscal issues to varying degrees. Furthermore, the SNB could once again find itself pretty helpless in terms of trying to fight this strength, should this aversion to countries with sustained deficits really take hold.

"Intervention is an option but, despite the increased reserve levels and balance sheet position (around 55% in euros, from over 70% last year), it could well be a futile one."

Gold

Gold is always considered the ultimate safe haven, and it has so far served investors brilliantly during this downturn – rising 16% during 2011. Silver has performed even better, up 30%, despite a crazy period in the spring when margin calls (when an investor has to deposit more cash or securities to cover possible losses) were increased four times in six weeks as regulators feared that speculators were driving the price too high.

The consensus among analysts is that both metals will continue to rise, although there are some famous names who strongly disagree. George Soros, the financier who "broke the Bank of England", is a gold bear. "The ultimate bubble is gold," he said in May. "Gold has shown tendencies to go parabolic, and usually bubbles tend to end in that parabolic rise before the collapse."

Premium bonds

Another perennial safe bet, but are they worth it? According to the Premium Bond calculator on the financial website Moneysavingexpert.com, an investor enjoying average luck and punting £30,000 would expect to win £400 over one year – or a return of 1.3%. That comes tax free, so is equivalent to a 2.2% return at the 40% rate. In normal financial times, that would not appear stellar. But, with interest rates at 0.5%, it suddenly does not look too shabby.

Fine wine and art

Your typical City wine investor delights in boring acquaintances about how he drinks for free by buying two cases of young wine and leaving them to mature, before quaffing one and selling the other to finance his purchase. The brag is almost always nonsense but there are those around who reckon that wine can deliver decent investment returns. The Wine Investment Fund, which asks investors for a minimum £10,000 commitment, says it has paid out annualised returns of upwards of 13% on its portfolios between 2003 and 2006, while 2009 punters are enjoying a vintage year with many showing profits of more than 20%. Even 2010 investors currently have profits upwards of 8%.

However, there are those who believe that this cannot last. "Historically wine has had a good run, but there is a feeling it is getting near the end of the bubble," said one City trader. "Every man and his dog seems to be cropping up as a wine broker. And unlike gold and stocks, if the price starts to fall you might struggle to get out as it's not the most liquid asset, if you forgive the pun."

Yes, very droll. Equally, art is not an easily sold asset but it is also touted as another area for nervous investors. "The idea of contemporary art as a safe haven is a joke," said the entrepreneur Luke Johnson. "It is particularly illiquid, transaction costs are enormous, there is clearly no income and capital growth prospects are at best uncertain."

A number of art funds fell over during the downturn, but the Fine Art Fund Group, which has a base level $250,000 (£153,000) investment, is still around and boasts annualised returns in excess of 25% in its two main funds.

Still, in a world where everybody talks up their own book, it may be worth noting a quote frequently (but dubiously) attributed to Pablo Picasso: "I'm a joker who has understood his epoch and has extracted all he possibly could from the stupidity, greed and vanity of his contemporaries." Maybe not a screaming buy, then.

High-yielding stocks

Can high-yielding equities suddenly be a safe haven? UK shareholders have received their largest dividend payouts since the collapse of Lehman Brothers in 2008, with companies returning £19.1bn to shareholders in the three months to July – a 27% increase on the same period last year, according to Capita Registrars.

However, investing for the income might still put your capital at risk. David Jones, chief market strategist at IG  Index, said: "The stock market has been going up for two and a half years and might be fully valued. You may get the dividend, but possibly not the capital appreciation."

The mattress

If you invested in the stock market 11 years ago, you are still waiting for a return. And with interest rates at 0.5% for more than two years, leaving your cash in the bank has not proved to be a massively profitable option. Sticking your funds under the bed might be one approach and it is similar to one adopted by many companies, which are now reluctant to lend their spare funds in the wholesale money markets.

Louise Cooper, market analyst at BGC Partners, said: "For some risk-averse companies, it may be better just to keep the cash inside the company and earn nothing on it, rather than lend it out for a minimal return, with degrees of risk currently being replaced with fear of the ultimate risk."

So should private investors follow suit and simply stuff their wads under the mattress? "It's an option," admitted one frustrated City analyst. A word of caution, though: if the house goes up in smoke, the insurance will only pay out on £500 or so of burnt notes.


guardian.co.uk © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds


July 01 2011

New Zealand's island ruled by artists

A stone's throw from Auckland, the bohemian enclave of Waiheke Island has become a gallery-rich art destination. Our writer follows its sculpture trail

My first impressions of Waiheke Island are coloured by the sight of bare bottoms, all brightly painted in tinges of lime green, lemon yellow, electric blue and blushing pink. Sailing in from Auckland on the hourly Fullers ferry, we pass underneath a whole hillside of these cheeky sentinels, life-sized human figures standing stock-still and buck naked on the headland above Matiatia Bay. They were carved from wood and screen-printed to look three-dimensional by a sculptor named Christian Nicolson. His installation, titled Barebottomland and inspired by the Spike Milligan story Badjelly the Witch, was selected to open the biennial Sculpture on the Gulf festival which ran earlier this year.

There is talk of making it a permanent fixture, a way of saying "Welcome to Waiheke" that encapsulates the spirit of the place. Which is not to say the place is a nudist colony (though two of its 100 white sand beaches do operate a "clothing-optional" policy). It is merely to suggest that this island is ruled by artists and artisans.

The sculpture festival was founded by the Waiheke Community Art Gallery in 2002 as a showcase for the local creative element, who have turned the landscape into an open-air exhibition space. Following the coastal trail between the various featured artworks is like taking a nature walk through some parallel world where eight-foot totems of Super Mario – created by 13-year-old Timothy Sang – are built out of giant Lego blocks and planted on the clifftops.

A gigantic marine fossil seems to float over the harbour with an exoskeleton of electro-polished steel. Luminescent boats shaped like fallen leaves are anchored to the shore below. Some of these pieces were made by competing sculptors from Auckland – which is visible in silhouette as the sun goes down, just 18km across the Hauraki Gulf – or other parts of New Zealand. But this year's first prize goes to Denis O'Connor, who has lived on Waiheke for more than 40 years, and is sometimes given the credit for establishing it as a bohemian enclave.

"I came over with the dropout generation," says O'Connor, lying back on the grass beside his winning entry, a horsebox filled with chalk-like etchings and inscriptions – a metaphor for the mind of the artist that he has titled the Tangler's Cave. "At that time, a lot of us were getting pretty fed up with the city, and Waiheke was known as a haven for what you might call 'alternative lifestyles'. Aucklanders used to joke that they could see a constant cloud of pot smoke hanging over the island." The population has since grown to around 8,000, with another 3,400 arriving every summer to occupy their beach houses and holiday homes, the oldest of which are traditional New Zealand "baches" – simple huts with timber walls. And with O'Connor leading by example, the "dropouts" have become considerably more productive. Local art is now a viable industry, and hundreds of islanders make a living in it. The thoroughfare of Oneroa village is lined with shops and galleries full of their work. "For many years, Waiheke was a refuge," says Olivier Duhamel, who sculpts in bronze at a gallery called Bodyscape (+64 9 372 7220, bodyscape.net.nz). "But recently it's been growing into an art destination. People are coming over specifically to buy here."

Around the corner at the Toi Gallery (+64 9 372 2962, sallysmith.co.nz), which showcases the work of Sally Smith, among others, I am told that an artist named Chris Bailey is so in demand that they can barely keep his pieces on display. Invited to visit Bailey's nearby workshop, I find him carving out a headstone for a recently deceased family member. "My heart is in the stone," he says. A hulking Aucklander of mixed Irish and Maori descent, with a punch-bag hanging next to his workbench, he first came to Waiheke to escape the gang culture of the city's west side. "I basically reinvented myself, away from all my peers," says Bailey. "This island lets you do that." Having subsequently learned the tool-making techniques of his Te Aupouri ancestors, he started carving native wood, granite, andesite and basalt, based on tribal designs for weapons, paddles or anchor stones. "I love how all that stuff was essential, but also beautiful." That stuff is now fashionable, for lack of a better word, and therefore marketable.

While we're talking, he receives a phone call to tell him that his entry for the sculpture festival has already been sold. "I've got goose bumps, mate," he says. "Every sale means I can pay a few bills, and order in some new stone."

Most islanders will tell you that Waiheke is becoming more affluent, and many have turned to making their own breads, olive oils, sheep-milk cheeses and other high-end comestibles, to capitalise on the recent influx of wealthy retirees from the mainland. According to Denis O'Connor, these newcomers "either loosen up, or get divorced".

My hosts seem to belong in the first category. Gene O'Neill and Liz Eglinton were living what they call "corporate lives" in Auckland until 10 years ago, when they quit their jobs and built a guesthouse on 16 acres of island hillside, facing west toward the city and the sunset.

Modelled on Waiheke's old-style bach accommodations, but a great deal more luxurious, their Te Whau Lodge makes a tasteful and respectful case for gentrification, with nothing but local produce in evidence – from the soaps to the seafood and the wine cellar. Sitting in the hot tub on their sun deck with a glass of syrah, I can't see any signs of imminent class war. "Not likely," says Liz. "There's a pretty healthy relationship between the islanders and the people bringing money in."

The view is even better from the fine-dining restaurant on the Mudbrick estate (+64 9 372 9050, mudbrick.co.nz), one of several boutique vineyards that began taking full advantage of Waiheke's warm and breezy micro-climate in the 1970s and have since covered swathes of the island in world-class bordeaux and chardonnay grapes. But for the first time during my stay, it begins to rain, and the low clouds pour down over Church Bay, obscuring Auckland in the distance. "Great," says my waitress, and she's not being sarcastic – residents depend on these showers to fill their water tanks. "That's how you tell a weekender from an islander," she says. "The tourists hate the rain, but we bloody love it."


guardian.co.uk © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds


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