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A consumer&#39s View

The Government would do well to keep a low profile on promoting stakeholder pension if it does not want to find itself accused of pushing people into loss-making investments.

If, as seems likely, employees find when they receive their annual stakeholder statement this time next year that they have lost money, the vast majority will abandon saving for a pension immediately.

Vociferous complaints from novice investors persuaded into technology-based Isas in the first quarter of last year should serve as a reminder to both the Government and the pension industry that people who have hitherto only held deposit accounts do not take kindly to losing their hard-earned savings on the stockmarket. Once bitten twice shy, they are unlikely to be persuaded back.

Unremitting optimism is a malaise which afflicts the entire retail savings industry. When did anyone ever advise a saver not to touch shares or equity-based products with a bargepole?

The problem is that the Government has a vested interest in pretending that the economy is in great shape and that the obvious recession in the US will somehow leave us unaffected. Some hope.

It is much more likely that the current bear market is only the beginning of a long downward drift.

IFA David Kauders warns: “This is a deflationary bear market whereas the 1973/74 bear market was caused by the onset of high inflation.”

As an example of what we might experience, Kauders points to the long-running Japanese bear market of 11 years. “The Japanese bear market has a long way to run and the financial services industry will obstinately refuse to learn anything from Japan,” he suggests.

The latter statement is almost certainly correct. At the beginning of this year, virtually all the investment pundits were predicting that the FTSE 100 would be higher by the end of the year than it was at the beginning. In some cases, the predicted level was as high as 7,300. But why the optimism?

We are reminded regularly that past performance is no guide to the future, yet investment “experts” were citing the fact that we have never in recent years had two consecutive years of negative returns on equities.

Those of us who have rather better memories can instantly recall 1973/74.

Gordon Maw of Virgin Direct, for example, was pointing out at the beginning of the year that, in the three years immediately following the 1990 and 1994 stockmarket corrections, the market climbed by more than 25 per cent a year in both cases.

This is true but the economic situation in 1990 to 1994 was very different from today. We were already in recession in the early 1990s whereas the potential was far greater then for shares to pick up. Today, shares are arguably still overvalued.

Corporate profits are only just starting to reflect more difficult trading conditions and declining profit margins. These will be squeezed still further as businesses and individuals compare prices on the internet. Prices, in both real and nominal terms, are falling.

Rupert Murdoch was almost certainly right when he said the internet would destroy as many jobs as it creates.

Investors would do well to heed the warning from Kauders. Japan&#39s economy is very different from the UK economy but it does have one important factor in common – the average age of the population in both countries is over 50. At this age, we are all saving for our retirement and have probably got as many clothes, cameras, computers and other consumer goods as we will ever need.

Spending is discretionary on virtually everything except food and utilities,which is why the high-street retailers are having problems.

Kauders has issued a challenge to journalists: “Tell your readers that equities are still grossly overpriced.” Some of us have done but nobody, least of all retail financial services salespeople and IFAs, wants to listen.

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