In that wilderness known as the stock market, the bears are starting to stir; very soon they will be out of hibernation and prowling the plains and forests in search of easy prey.
That, at least, is the view of pessimists who see the current bull market as unsustainable although more encouragingly they tend to talk of a “reversal” or a “correction” rather than a “crash”.
We have, of course, been here before and in previous years these warnings caused something of a dilemma to holders of modest stock market investments: i.e. should they ignore the bear-ish warnings or should they count their blessings, take profit and lock their gains safely in a deposit account.
Nowadays that dilemma has been largely negated by the decision of the Chancellor, George Osborne, to print £350 billion of money under the euphemism of ‘quantitative easing’.
In doing so Osborne pulled the rug from under the prudent in order to give a lifeline to the feckless – i.e. people who were temped into buying properties beyond their affordability level or who used the equity in existing properties to purchase luxuries like motorised caravans and Caribbean holidays.
‘Quantitative easing’ has meant banks and building societies have no longer needed to bid against each other for depositors’ money.
Consequently, even four-year savings deals are unlikely to yield any more than three per cent per annum, variable savings accounts pay around one per cent and sub-one per cent has become the standard rate for easy access ISAs.
Indeed, the only advantage in a cash ISA at the moment is avoidance of the hassle of declaring the interest on one’s tax return – the money earned certainly does not cover inflation.
Even the much-vaunted Pensioners’ Bond is not exactly what it says on the tin, the 2.8% return on a one-year bond being hardly generous, especially to anyone paying 40% income tax.
In fairness to Mr Osborne, his decision, announced in last week’s Budget, to make the first £1,000 interest from savings tax-free will be of some help but only when – if? – the bank base rate returns to what might be described as ‘normal’.
However, as things stand at the moment, unless needing access to cash either now or in the near future, small-investors would probably be best to batten down the hatches and let the bears have their way, even if it means incurring a paper loss for a period.
The manner in which the allegedly independent Bank of England Monetary Policy Committee continues to slavishly follow the government line means that in the event of a stock market reversal, prices are likely to recover long before any return to a meaningful base rate.