Our content this month are as follows:-

• What to expect from the economy
• In the News
• Books we have read
• Quotes of the month

It is often said that if you want to be a successful economic forecaster, you should forecast growth, as growth in the economy occurs 90% of the time. This may not be a successful strategy in the UK over the next two or three years for the following reasons:-

Official government debt stands at £825 billion (Times online 20 October 2009), 59% of the UK’s entire economic output.

True government debt is estimated by the Centre for Policy Studies at £2,200 billion, a staggering 157% of GDP! This figure includes pension liabilities, PFI liabilities and the cost of the Bank bailouts.

We already know that this will lead to reduced government spending, more government borrowing and increased taxation. The measures taken by the government so far (quantitative easing) are likely to lead to increased inflation and coincidentally this may suit the governments of many developed countries as it will reduce their indebtedness in real terms pretty quickly. It is sobering to think that 5% inflation reduces the purchasing power of your money by 22% in only five years. At current interest rates money on deposit is extremely vulnerable to higher levels of inflation.

Taxation - no matter who is returned in the next election it seems inevitable that taxes will rise. Increases in the basic rate of taxation are politically unacceptable and we can therefore expect the burden to fall on high earners and the wealthy. Prime candidates are an increase in inheritance tax and capital gains taxes, with an increase in higher rates thrown in for good measure.

It is critically important therefore that wealth is protected in the most secure and tax friendly structures available. For our clients we source tax efficient vehicles, which give tremendous control to the individual as to how and when tax liabilities are triggered, as well as enjoying unparalleled security - these structures will be extremely important over the coming years.

Paul Farrow, writing in the Sunday Telegraph on the 25th October, reports that Anthony Bolton is still bullish on stock markets. Whilst we would give no particular credence to Mr Bolton's forecasts, he is a useful counterpoint to the Jeremiahs who are forecasting another downturn, which they expect to drag stock markets with it. As we reported last, Mr Bolton does not give any particular weight to economic forecasts and the performance of the stock market over the years lends credibility to that view.

In a classic case of poacher turned gamekeeper, Alan Miller, formerly of New Star Asset Management, has gone public with a statement that the true cost of investing in an actively managed fund averages 2.8% per annum. In the same article, which appeared in Money Week, it was pointed out that a study done by the economist Kevin James for the Financial Services Authority concluded that hidden charges added around 1% per annum to the total charges for actively managed funds. Another reason why actively managed funds continually underperform markets.

This month we are recommending "Why England Lose (and other curious football phenomena explained)" by Simon Kuper and Stephan Szymanski.

Simon Kuper is the Financial Times’ football correspondent and in order to write this book he has teamed up with a distinguished econometrician (to paraphrase the book, someone who tortures data until it reveals its deepest secrets). Here at IWM we have a belief that many things in the world can be explained by numbers and this book attempts to do it for the world's favourite game.

Whether you are a football fan or not there is much to enjoy in this book; it reveals:-

• why football is probably the worst business in the world
• why businesses fail but football clubs continue on and on
• the country that loves football the most (the answer will surprise you)
• why hosting World Cups is good for you
• why England lose (their record is better than you may think)

It is available from good bookstores and Amazon, but if you have any difficulty finding it please contact vickie@indexwm.co.uk.

" Iron rusts from disuse; stagnant water loses its purity and in cold weather becomes frozen; even so does inaction sap the vigour of the mind".
Leonardo da Vinci

“ Any fool can criticise, condemn and complain - and most fools do".
Dale Carnegie