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Investment view

Following the stockmarket as it hovers around 4,500 is about as stimulating as watching paint dry. I am left with the feeling that most investors consider shares to be properly priced in the sense that, in the absence of external influences, there is no justification for seeing shares move significantly higher or experiencing a sell off. The market is waiting for the next big thing and hoping it will have a benign influence.

On the positive front, the early handover of sovereignty in Iraq brought some respite to those fearing we would never again see oil below $40 a barrel. Oil is an important component in the inflation mix. While the much anticipated rise in US interest rates was a modest 0.25 per cent, the fact that the cost of money is on the rise for the first time in more than four years suggests the Federal Reserve Bank considers pricing power could be returning to US businesses.

In the UK, the recently issued set of revised figures from the Office of National Statistics suggests the monetary policy committee has been right to try to head off inflation with dearer money. It is clear that Chancellor Gordon Brown has been priming the pump with even more Government expenditure than we realised. Useful as that has been at a time of economic sluggishness in the rest of the economy, it creates imbalances that could yet return to haunt the Chancellor.

But these figures must this week play second fiddle to another numbers story. It has been disclosed by certain local authorities that the size of their pension deficits is likely to create real problems for council taxpayers or the Government – perhaps even both. It would appear that the shortfall for the West Midlands authority has risen to well over £1bn. At least part of the deficit arises because of some generous early retirement packages that have been on offer. Most, if not all, local government pension schemes are based on final salary and include an indexation provision. There are benefits that are fast disappearing from the private sector.

From the point of view of those who work in local government, no change in the status quo is the desired option but getting council taxpayers to agree will become increasingly difficult. Solutions range from closing schemes to new members (something the rail unions had a robust opinion on when their employers tried a similar approach) to upping employee contributions, which will require Government approval.

The sorry state of affairs highlights two aspects of what is fast turning into the dominant story in financial services. First, the Government has consistently underestimated the extent of the pension problem in the UK. Even the so-called pension lifeboat looks like being woefully inadequate, given the number of people affected by the collapse of their employer. Second, we are all going to have to save more for retirement. Persuading people to buy low-cost products will simply not work. Compulsion is looking increasingly to be the answer.

I was struck by how it is individual company stories that are making the running these days. Last week, Sainsbury returned to the fore with the ousting of chairman Sir Peter Davis. Shareholder activism appeared the reason, with a generous bonus package the catalyst. But individual as this story is, it rather serves to highlight the massive divide between those at the top and the rest – just as this latest pension story shows how different conditions are for those working for the Government and those in the private sector.


Seed Capital – Oxford Technology VCT 4

Type: Venture capital trust Aim: Growth by investing in early stage and start up technology-based companies within a 60-mile radius of Oxford Minimum investment: Lump sum £5,000 Closing date: April 5, 2005 for 2004/2005 tax year, May 27, 2005 for 2005/2006 tax year Charges: Initial up to 4%,annual 2% Commission: Initial 3% Tel: 01865 784466

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