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The sheriff of AIM strikes again

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After last night’s documentary on the BBC Inside Out London which you can watch here , Investors are left with one question. Has David Lenigas & Steve Sanderson ramp up shares in UK Oil & Gas (UKOG) with unjustifiable claims about Horse Hill ? 

If we go back to April Shares in exploration company UK Oil and Gas (UKOG) exploded after the discovery of up to 100bn barrels in its oil field in Sussex. The question everyone is asking  is where did the press get the 100bn barrels figure from? Rising 164 per cent on the 9th April 2015. Why did neither David Lenigas or Steve Sanderson go out of their way to correct the media about the extortionate number being quoted all over the news?

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UKOG claim they have no idea where this number came from but Inside out London clearly shows Steve Sanderson clearly stating 100bn Barrels. So what has happened ? clearly the claims have been exaggerated.

This is where the Sherriff of Aim Tom Winnifrith comes in. As anyone who follows Tom on Shareprophets would know , Tom is notorious for investigating companies who are not being truthful the their shareholders or Investors . Currently receiving on average four lawyers letters a week and a death threat every couple of months he considers himself the sheriff of Aim and the man on the investor’s side. 

As Tom Winnifrith and David Lenigas continue their wage of war on twitter 

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Investors are left with one question – What returns are we actually likely to expect from our shares in UKOG ?

We ask the one and only Sheriff of Aim his thoughts

‘You will make a lot less than David Lenigas will. He is now a proven ramper. I ask simple questions of him but instead of answering he posts silly tweets attacking me. I answer this from Bristol where I live 10 months of the year as he knows well. The man is talking cock and anyone owning shares in UK Oil & Gas can look forward to a life of poverty.’ Tom Winnifrith

 

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UK’s over 50’s turn to the stock market to secure their financial futures

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For those fast approaching the age of retirement, money can be a concern. Knowing that your finances are arranged so that you can do more than just survive, and in fact thrive during your golden years can be a big weight off your mind. With savings accounts providing little more than a pittance of a return, many UK over 50’s are trying their hand at the stock market to help grow their nest egg.

A fit financial future

The majority of over 50’s in the UK today will have already amassed a reasonable pension pot, certainly enough to see them through later life with food on the table. But older people are also starting to realise that retirement is about more than just gardening and daytime TV. Retirees are now living longer, and enjoying better health than ever before, with many setting off to explore the world, indulging in luxury holidays or taking up new hobbies to fill up all their extra time.

With the prospect of many years of pleasure ahead of them, over 50’s realise that they need more financial vehicles behind them than just a simple pension pot. Traditionally they may have held other savings accounts, such as ISA’s, in order to bolster their basic income in retirement. But with the lowest ever rates on investments and little sign of improvement in the near future, many are starting to think outside of the box when it comes to making their money work for them.

Silver shareholders

According to research conducted by Saga, more and more mature people are turning to the stock market to grow their savings and fund their retirement. Their recent survey showed that:

  • 50 per cent of the over 50’s own shares in a company, although one in six has either inherited them from a relative or been given them by an employer
  • One in three of these shareholders say they are hoping to use the potential returns to boost their income and capital once they stop working
  • 21 per cent say they regularly buy and sell shares to supplement their current income
  • Two thirds of shareholders say that they strongly believe that they will get a better return on their investment in shares than if they put their cash into a traditional savings account
  • Not all mature shareholders are in it for the money, as 7 per cent said they enjoy checking the FTSE as a hobby, and others say it keeps them mentally active

Saga estimates that there are around 11 million over 50’s in the UK right now who own shares in at least one company. There is a slight bias towards men, with 75 per cent saying they have bought shares compared to 60 per cent of women.

A good investment?

There is no doubting that, right now, investments going into savings accounts are not going to be generating much of a return. However, buying shares is not without its risk too. Many of these over 50’s are enjoying a much better return on their investment than they had hoped for, but for every success story there is also another side to the coin.

Shares are notoriously volatile, and can change value dramatically in a very short space of time. For most investors, well placed shares offer a great opportunity to grow their capital, but for the unfortunate few who don’t make the right choice, everything could be lost. If you’re thinking of making an investment on the stock market, be sure to take educated advice before making any decisions.

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Signs of economic recovery boosts fortunes of container leasing companies

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Container Investments has been there for the last thirty years but the recent surge in popularity is mainly attributed to globalization and increasing displeasure with traditional form of investments. The surge in trading agreements between countries and between corporations bolstered by seamless communication in recent years has helped the shipping industry grow at a rapid pace. As a result, the expansion of shipping industry invites more capital investments not only in vessels but also in containers. The top four exporters and importers of the European Union are Germany, Italy, Netherlands and the United Kingdom and China alone accounts for over 30% containerized cargo activities in the world. According trade statistics, UK is the seventh largest importer of containerized cargo in the world, and the trend is expected to continue for the foreseeable future. About 90% of the world trade happens via sea and this has given rise to numerous sub-sectors such as docking, waste management and container leasing.

Containers are built on demand depending on orders from liner shipping companies in different sizes. As the order flow fluctuates in the economic cycle, post 2008 financial meltdown, shipping companies prefer leasing the containers to avoid huge capital investments and this gave rise to the birth of container leasing companies. For number of years now, the share of leased containers is on the rise compared with owned containers. Since Long-term leases with shipping companies were honored in timely manner and the sign of economic recovery visible, leasing companies are sourcing capital directly or via different investment companies to increase capacity in the form of containers.

Pacific Tycoon is one of the famous container leasing companies, and the company helps investor own a single container for $4100. The owner is provided with choice of fixed lease and variable lease, and the company pays 12% on fixed lease and variable lease is an aggressive option to earn up to 30% on the upside. The payments are made quarterly for investor owning less than 5 containers and the income is transferred monthly for those who own over 5 containers.

According to the company, the containers owned by the investors are insured both in sea and land, and also the depreciation can be accounted for taxable purpose with suitable arrangements. The company claims a return of 26% for the asset class, container investments and the containers could be sold off any time as exit strategy.

Into the risk profile, the container investments are neither standardized nor regulated by any government authorities, and numerous offers in the past had turned into Ponzi schemes. The due-diligence and cautious approach should be handy for the investors in choosing the right company. Institutional investors in the past have successfully used container investments as diversification measure. This form of investment has low correlation with financial instruments such as stocks and bonds. With exit strategy in place, unlike other alternative assets, container investments are considered to be relatively liquid, but the purchase cost of containers are moderately high. In-line with alternative assets characteristics, there is minimal information on secondary source which are reliable to assess the real potential and risks.

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7 Things Every Investor Needs to Know about the EIS scheme

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For a long time, investors have been managing risk by distributing their eggs amongst numerous baskets, in order to build diverse investment portfolios. Since the government introduced the Enterprise Investment Scheme (EIS) in 1994, it has become even easier for investors to manage the risk on their investments.  The EIS scheme offers investors the opportunity to engage with potentially very lucrative investments, whilst still retaining an acceptable degree of damage limitation over their cash.

In simple terms, the scheme works by incentivizing individuals to invest in up-and-coming UK businesses who are not registered on the stock market, and thus who generally pose a higher risk to investors. These incentives are tax related, whereby the government withholds many of the usual tax obligations in order to allow investors a more attractive risk-to-gain ratio on their investment.

With this in mind, here’s the 7 most important things investors need to know about the government EIS scheme.

 

  1. Benefit from Tax Relief on EIS Investments

Even if you know very little about the EIS scheme it is likely you will have heard about the promise of a 30% tax-relief on all EIS investments up to £1 000, 000. This means that if you were to invest £50,000 in an EIS investment, you could enjoy tax-relief on £15,000 of your investment.

In order to benefit from the tax relief clause, you should retain your EIS 3 certificate and provide this to HMRC when filling in your self-assessment tax return.

  1. Enjoy Exemption from Capital Gains Tax

As long as you retain your EIS investment for at least three years, any profit you make after disposing of your investment will be exempt from Capital Gains Tax (CGT). Capital Gains Tax rates can vary from 18% to 28% (typically payable after an initial Capital Gains allowance of £11,000), so the potential saving from this exemption is significant.

Many of the EIS shares do make significant, stable profit over time and so investing in the right one over a period of 20 years, whilst being exempt from any CGT, could result in a very lucrative capital gain.

 

  1. Offset your Losses if it all goes Wrong

Perhaps one of the most attractive aspects of the EIS scheme is the ‘loss relief’ that it offers. Firstly, you are able to minus the 30% of tax-relief allowance from your capital loss, as the government effectively agree to be liable for 30% of your investment when you invest in the scheme.  Secondly, you are able to offset a proportion of remainder against your tax bracket for that year.

So, for example: If your capital investment of £50,000 suddenly became worthless – you could minus £15,000 from the capital loss (30% tax relief), leaving you with £35,000 of capital at risk. Furthermore, assuming you’re in the 45% tax bracket, you could then offset the £35,000 of capital against your loss relief allowance, meaning that your actual loss would be £19,250, rather than £50,000. As such, risk of catastrophic loss is managed fairly well in an EIS investment.

As already suggested, the most sensible investors are likely to spread their cash over a wide variety of different investment projects. As such, it is not advisable to invest all of your funds in EIS investment opportunities, as even though the risks are managed, they could still result in substantial losses.

 

  1. Backdate the Benefits to the Previous Tax Year

Another great benefit of this scheme is that the investment can be treated as if it were acquired in a previous tax year. As such, the tax relief of 30% can be backdated to a previous year.

 

  1. Be Aware of the Restrictions

There are numerous important restrictions which you should be aware of before taking out an EIS investment. Some of the important ones being that – you cannot hold more than 30% of the company’s shares you are investing in, and you also must not be employed by, or have any connection of interest with, the company whose shares you are investing in. The other crucial thing to remember is that you must hold the shares for a minimum of three years to take advantage of any of the tax related benefits. If you do not adhere to the three year rule then tax relief will be withdrawn, and this withdrawal backdated where applicable.

 

  1. Tax Inheritance Relief

EIS investments are also completely exempt from inheritance tax after a period of two years, so long as the investor still owns the investment at the time of death. Seen as almost every asset or investment is liable to inheritance tax, this exemption is a noteworthy perk of EIS investments.

 

  1. Decide Whether to Invest Directly or via a Fund

EIS investment funds allow investors to place their investment in various small businesses, whereas a direct investment will involve devoting the funds to just one business. There are clearly positives and negatives to both of these choices. However, investing via a fund may be a further way of managing risk for the more cautious investor, as investing via a fund does seem to align with the more general tendency for investors to build a wide-ranging and diverse investment portfolio.

 

Although this article has tried to cover all the important aspects of EIS investments, it is important to fully research all of your options so you can make an informed decision about whether an EIS investment is right for you. A good place to find more detailed information is on the HMRC website. If you have decided that you want to take advantage of the tax related benefits that come with EIS investments then the next step is to decide exactly how, and with who, you are going to invest your funds.

On balance, EIS investments seem to have a two-fold benefit. Not only are they likely to continue providing a much needed boost to the UK economy, but they also appear to provide a unique investment opportunity for British investors; investment which has good lucrative potential backed up by a significant degree of damage limitation.

 

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How Not to Get Caught Out by Big Central Bank Moves

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On January 15, 2015, the Swiss National Bank (SNB) officially abandoned its EURCHF minimum peg policy which had been in place since September 6, 2011. At that time, the SNB, worried about the increasing strength of the Swiss Franc and the negative impact this would have on Swiss exports (including tourism), had placed a minimum peg of 1.2000 on the EURCHF. The SNB had promised then to defend the peg vigorously. When that decision was made, the CHF currency pairs in the market saw significant movements in a space of 15 minutes, with generalized weakening of the CHF. The snapshot below shows the movement on the EURCHF on September 6, 2011 when the decision was announced.

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When the minimum peg was abandoned, it caused a great upheaval in the forex market, with traders and brokers affected by the outcome of the decision.

Traders: Many traders had banked on the fact that the EURCHF peg would continue to be defended at the 1.2000 level. Despite the fact that there was heavy pressure at that level for several weeks leading up to the peg abandonment, many traders had long orders at or around that price level, with very tight stops set just below that peg. There had been occasions in the past when rumours of a further tightening of the peg or some news item that led to Euro strengthening, had caused the EURCHF to go as high as the 1.2472 mark. Knowing that this 250-pip band had been achieved in the past, many traders were as it were, “all in”, with very little attention paid to risk management. Many of these traders were also operating with very high leverage and little of their own margin, and sustained huge losses which exceeded their account capital as a result of the slippage which occurred and the inability of brokers to cover the stops on those trades. Some brokers are now trying to recover the negative balances from their traders.

Brokers: Many retail brokers have always offered their clients very high leverage to the order of 500:1, effectively allowing their traders to trade with as much as 500 times their own committed capital. This led to a situation where many brokers which were not very well capitalized, over-extended themselves with the leverage capacity. When the peg was abandoned, the bottom literally fell out from under the bucket. Massive slippage occurred with the EURCHF tanking by almost 3,500 pips. This sent many trading accounts into debit as their stops could not be covered by the brokers.

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The ability of brokers to curtail trading losses via issuance of margin calls to affected accounts also led to significant losses on broker accounts. Presently, Alpari UK and Excel Markets have been declared insolvent while several other brokers have taken steep losses. Only a few brokers who saw the writing on the wall and cut their leverage provision on CHF pairs to 10:1 were spared.

Many of these losses would have been avoided if traders and brokers alike had fully understood the market fundamentals that led to this move.

Why the SNB Abandoned the EURCHF Peg

How did the SNB get to the point where it was forced to eat its words after promising to defend the minimum peg aggressively?

Maintaining the peg involved the SNB having to sell hundreds of billions of Swiss Francs, and buying the Euro in exchange. In other words, the SNB would flood the markets with Swiss Francs, leading to an oversupply situation, while acting as a Euro buyer of last resort. The supply pull on the CHF would also extend to other CHF pairs as well, causing a generalized weakening of the Swiss Franc.

The essence of this move was clear: to make the Swiss Franc cheaper relative to other currencies and promote Swiss exports. Tourism for instance, is a major income earner for the Swiss economy. During winter, many tourists hit the ski resorts and tourist centres for holidays. A cheaper Swiss Franc would mean that tourists from Europe and the US can exchange their Euros and US Dollars for more Swiss Francs than they would have been able to, allowing them greater spending power while in Switzerland and other Helvetica territories.

However, a number of market fundamentals began to challenge the peg heavily in 2013/2014. One of the challenges to the peg was the seemingly unending Eurozone sovereign debt crisis. The anti-austerity Syriza party came to power in Greece and threatened to completely unwind all actions and agreements entered into as part of the Greek bailout package. Faced with continued pressure on the Euro, the European Central Bank was forced to announce a quantitative easing package which would see a very massive bond buying program that would further depress the value of the Euro. These factors made the cost of defending the EURCHF peg increasingly unsustainable for the Swiss National Bank, leading the bank to finally jettison the peg in January 2015.

Some market analysts had seen this coming as far back as October 2014. Dukascopy, a Swiss-based forex brokerage, had predicted the abandonment of this floor in an October 2014 article on its website, taking a proactive move to reduce the leverage on CHF pairs to 10:1, thus reducing the exposure of its clients and its own exposure as well. Gain Capital, Saxo Bank, RoboForex and Admiral Markets also reduced their leverage on CHF pairs before the SNB decision.

Going Forward

It is now evident that the words of central bankers are not set in stone and that the only thing that is constant in the forex market is change. Change in policy and changes in market fundamentals can happen at any time in the market and can lead to very adverse consequences on traders and brokers alike. The fallout from the SNB tsunami underscores the importance of risk management as a tool for capital preservation and survival in the market.

It is very likely that we will see situations where risk management teams of brokerages will get a lot more proactive in the application of leverage. The Commodities and Futures Trading Commission (CFTC) had already mandated US brokers to set leverage of forex and options positions to 50:1 and 20:1 respectively as far back as 2010. While other brokers may not be as strict with their leverage and margin requirements, it is likely that brokers will no longer shy away from reducing leverage on currency pairs which are deemed to pose a slippage and negative balance risk to traders and brokers by extension.

Traders should also realize that they are their own first line of defence when it comes to slippage risk. Losses due to slippage can be minimized by proper position sizing and by use of manageable leverage amounts. It is hoped that all concerned can learn the right lessons from the SNB event of January 15, 2015.

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Market Upheavals: The Chinese Connection

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The selloffs in the major global stock exchanges as well as the collapse of commodity prices like copper and oil have continued into the second straight week. The fact that all this can be linked to one country, China, is beginning to make many market observers and indeed the general populace wonder: are we back to the 2008 scenario all over again?

The similarities are too striking to ignore. In 2008, the trigger for the global financial crisis was the collapse of the subprime mortgage market in the United States. Banks such as Bear Stearns and Lehman Brothers, which were heavily exposed to the toxic credit default swaps and other CDO instruments tied to this market, ultimately collapsed one after the other, triggering a massive global selloff as sheer panic seized the markets. Were it not for the intervention of the US government in the form of the Toxic Assets Relief Program (TARP) as well as various stimulus packages put in place by central banks across the globe, many more companies would have been forced to close down and the entire global financial system would have completely collapsed.

Fast forward to 2015. The world’s markets had been on a massive bullish run for close to three years and 2008 seemed a very distant past. Then the warning signs began to show in China. Just like many governments and businesses from all over the world were exposed to the US subprime mortgage market either via direct investment into the properties whose prices peaked and began to drop, or indirectly to the credit default assets based on these real estate assets, so also are many countries heavily exposed to China. China has massive investments in Africa. China accounts for 40% of the world’s production and requires the importation of large amounts of copper, gold, crude oil and other raw materials to feed its industries. So many countries have found themselves heavily dependent on China to drive their economies and sustain the value of their currencies. The 2008 experience which saw a localized problem in the US take on global dimensions, seems to have reared its head once more with a localized problem in China also assuming global significance.

The Chinese Connection

How did China start to impact the global markets negatively in recent times? One explanation is the consumption pattern of the products of the Chinese industrial revolution. China has a population of about 1.5billion people, but most of the products of Chinese industries are shipped abroad and do not serve this large local market. The dangers are obvious. When demand from the foreign markets starts to drop off for any reason, the Chinese economy also suffers. This has been the case for the last three years. Chinese GDP had hit a high of 14.2% in 2007, but over the last three years has drifted between 7.7% and 7.4%. This year, the central government in China identified as one of its development goals, the attainment of a GDP driven by a sustainable growth model, with an increase in local consumption of the output from Chinese industries. In pursuance of these goals, a GDP target of 7% was set in pursuance of these goals. However, a number of issues have cropped up within the Chinese economy which have not only made this GDP target seem at best too optimistic, but have also begun to threaten the global market as well.

  1. By the middle of the year, the Chinese stock market, which had on a two-year bullish run, began to show signs of a market bubble as uninformed investors among the general public poured into the market in droves. Despite the warnings by regulators, the influx of retail money into the stock market continued until the market corrections started. At a point, the Shanghai stock exchange plunged 11% in a single trading session, sending jitters around the financial markets. The central government tried a number of moves to support the market; getting listed companies to suspend trading in their shares and buybacks of stocks of companies, but nothing has worked. It now seems the authorities in China have thrown in the towel and are letting market forces fully determine the value of the Chinese stock market.
  2. Manufacturing has taken a big hit in China. The Flash PMI data which was released in the second week of August 2015 has shown that the Chinese economy is not just contracting, but may actually be on track to missing the 7% GDP target. This is bad news for commodity exporters to China such as Zambia, which makes 70% of its revenue from copper. Australia, which supplies a large chunk of raw materials and commodities used by Chinese industries, has also taken a hit and this has impacted the Australian Dollar negatively. This has sent commodity prices of commodities reeling.
  3. Faced with the scenario of not being able to meet GDP targets, the People’s Bank of China devalued the Chinese Yuan between August 11 and August 13, 2015 in a knee-jerk attempt to cheapen Chinese exports and drive export sales upwards. Whatever the intention, global markets reacted negatively to the news with Asian currencies plunging and stock markets across the world experiencing steep losses.
  4. The shale production in the US has already created a massive glut in the market, with latest data showing that there are roughly 2 million barrels per day more than market demand. With sanctions now lifted on Iran, the market is also bracing up for the addition of more oil to the market, which will further dampen prices. Oil is now trading at six-year lows.

The negative impact of exposure to China is now beginning to show in all asset classes.

  • Stocks

Stock markets across the world have been falling systematically. On Monday August 24, 2015, the Indian stock exchange fell by the most it has fallen in seven years, the Dow closed 588 points lower to mark its worst day of 2015, and European markets fell by about 5%. This is in addition to the steep losses sustained the week before.

  • Currencies

Hardest hit in all this are the emerging market currencies. These have been under pressure from the possible interest rate hike which the markets are expecting from the US Federal Reserve before the end of the year. The South African Rand plunged to is lowest level ever against the greenback, hitting 14.000 on Monday August 24, 2015. The Rand has been under pressure all year from the US rate hike expectation as well as several monetary policy decisions by the South African Reserve Bank.

Several Asian currencies have also been affected. The Kazakh Tenge plunged 22% on Thursday August 20, 2015 as the Kazakhstan Central Bank abandoned futile attempts at defending the currency. The Vietnam Dong, Turkish Lira and Brazilian Real have also lost ground against major currencies. The Malaysian Ringgit, Zambian Kwacha and Nigerian Naira have also suffered depreciation as a result of falling commodity prices and the Chinese Yuan devaluation which has made Asian economies in unable to compete favourably with China in certain trade sectors such as the textile industry.

  • Commodities

The slowdown of the Chinese manufacturing sector has hit countries that export raw materials feeding the Chinese industries particularly hard. Copper and oil prices have fallen steeply since the last year, and gold prices have also not been spared.

 

Conclusion

The volatility in global markets will no doubt provide good trading opportunities for informed investors. As the world watches the unravelling of markets, the question is: have we all learned any lessons from 2008? After now, will the world transit from overdependence or overexposure to one economy, or will changes be put in place? The world waits.

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