Welcome to our #83 weekly newsletter.
“For women taking control of their financial future”
-Jana Hlistova
From The Purse
In this week’s newsletter, we focus on the increase in National Insurance Contributions (NICs) from next April and what impact this has on women?
And we consider whether we are in a ‘market bubble’. These are often difficult to understand and predict, however there are a number of indicators which can help guide our thinking.
You can review the news in brief so you stay on top of global financial, economic and investing trends.
And don’t forget to listen to The Purse Podcast interview with Gloria Feldt. We talk about women and power, women’s relationship with money, building wealth, female investors, investing in women, gender parity and more.
I hope you enjoy this week’s newsletter.
Until next week,
Jana
NI increase: how does this impact women?
National Insurance Contributions (NIC) are due to increase from April 2022. What does this mean for women?
On Tuesday, UK’s Prime Minister Boris Johnson announced that National Insurance Contributions (NICs) would increase by 1.25% from April 2022. (Dividend tax rates will also go up by the same amount from the next tax year).
As reported by the Financial Times, the main rate of national insurance paid by employees has more than doubled since 1977, from 5.75% to 13.25% (as of April next year).
What are NICs?
National Insurance Contributions (NICs) are payments made on labour income. They are mandatory if you’re 16 or over and are either:
an employee earning above £184 a week
self-employed and making a profit of £6,515 or more a year
What does the NIC increase mean for women?
We know that women are exposed to more financial risk over the course of their lives.
On average, women earn less than men and have less money to invest. Women have more career interruptions, work in part-time or temporary employment and live longer than their male partner.
According to the latest Payspective salaries report 2021…
…the average salary in the UK for men is £33,923, compared to £27,981 for women.
The average is £31,461 which means that women earn 21% less income. Therefore even a (seemingly) small increase in NIC can have a significant impact on lower income earners.
Check for tax credits
As women take on the majority of child care and elderly care, they are entitled to tax credits. In other words, women can claim extra cash for this work.
The NIC increase can therefore be mitigated by women: (as per the FT Advisor):
claiming their full entitlements
ensure a full state pension
checking their tax codes
and pay more into a company pension scheme (as you get tax relief on pension contributions).
What next?
Read the government information on National Insurance
Find out about National Insurance Credits
Check your National Insurance Record
News in Brief
Financial news
The Fed balance rose by another $8.1bn to hit a record at $8.36tn as Jay Powell keeps printing money. The balance sheet us now equal to 36.8% of US's GDP vs ECB's 79.4% and BoJ's 133.5%.
Warren Buffett’s global market indicator hits a record 142%: stocks are too expensive and could crash. (The indicator takes takes the combined market capitalisation of the world's publicly traded stocks, and divides it by global GDP).
US: investment banks turn sour on US equity outlook. The spreading Delta virus, slowing global growth recovery or moves by central banks to exit pandemic-era stimulus programs all pose risks.
The European Central Bank (ECB) will start slowing the pace of its pandemic bond-buying program in the final quarter of 2021 (but this isn’t a wind down of its stimulus). They have also left interest rates unchanged.
Bank of England (BoE) governor says UK’s economic recovery is slowing. Supply chain disruption and staff shortages has hit the economy as it starts to ‘level off’.
National Insurance contributions to rise from April 2022. Dividend tax rates will also rise by the same amount from the next tax year. The move is in a bid to help fund health and social care costs.
Crypto: bitcoin, ethereum & DeFi
Bitcoin crashes 10% as El Salvador’s debut signals to sell. See current price.
El Salvador purchases first 200 Bitcoin, President Bukele confirmed on Tuesday. Bitcoin jumped to $52,000. El Salvador is the first country in the world to recognise Bitcoin as legal tender.
Bitcoin, Ethereum and Solana prices slip (and so does the S&P 500).
Solana flips XRP, as SOL outpaces Bitcoin, Ethereum crash recovery. SOL is currently trading $182.44. Solana has steadily surged in value over the last month, up 351% over the past 30 days according to CoinGecko.
Ethereum transaction fees fall while NFT market tumbles. The average cost of a transaction on Ethereum is right now is $12.2, according to Etherscan (that’s a significant decline from averages $59 on September 11 just four days ago).
OpenSea’s NFT volume drops 50% after monumental surge in August. Sales volume surpassed $4B in August; an industry-record.
Explainer: are we in a market bubble?
Market bubbles are difficult to understand and predict
Warren Buffett’s global market indicator has hit a record 142%.
As reported by Markets Insider, the global version of the ‘Buffett Indicator’ takes the combined market capitalisation of the world's publicly traded stocks, and divides it by global GDP. Above 100%, the global stock market is overvalued relative to the world economy (ie we are in a ‘market bubble’).
According to Buffett, buying stocks at 70% or 80% is likely to pay off for investors, but if the ratio approaches 200%, investing becomes very risky (the US stock market reading is at 208%).
However, because the indicator compares the current value of the stock market to past GDP, the ratio may be misleading.
Governments around the world have been propping up the markets and economies by printing money and injecting stimulus. (This has artificially inflated (or distorted) the market).
Given how high the market valuations of the global stock market, does this mean we are in a market bubble and a market crash is imminent?
Enter the ‘boom-bust-rebound’ model
As reported by the Financial Times, the famed economist, Robert Shiller noted in 2013: ‘history does not generally support the idea of bubbles that catastrophically and irrevocably burst’.
Shiller argued that although stock market booms ended abruptly in 1929, 2000 and 2007, these booms ‘reflated again in 1933-37, 2003-2007, and 2009-present respectively’.
Although many economists argue that market bubbles ‘end in tears’ and they are incredibly difficult to time or predict, there is new evidence by Chodorow-Reich and his co-authors, Adam Guren and Timothy McQuade which suggests a ‘boom-bust rebound’ model.
Using the US housing market as an example, they argue that although in 2006, house prices were above the long-term trend, the US market rebound after the crash of 2008/9 because the fundamentals had changed.
For example, US cities were becoming more attractive and technology has played a big part in that.
As more people move to a city, the demand for housing goes up which in turn drives up the price of homes (as supply is limited or can not meet demand). The housing market continues to go up because more people want to (or need to) live in cities.
Have the fundamentals changed in the global stock market?
According to Chodorow-Reich’s version of the 2007 housing boom, the cycle of ‘over-optimism’ can get started ‘from an underlying change for the better’, as reported by the Financial Times.
If we apply this thinking to technology stocks, although they were hugely overvalued in 2000, investors were not wrong about the impact of technology on business and society at large.
What do long-term interest rates have to do with it?
If long term interest rates drop, future cash flows become more valuable. And as less capital is required to launch businesses online, companies generate a better return on investment. However, investing in stocks is likely to generate lower returns.
But according to Shiller…
….it depends whether the comparison is being made to historic prices or the relative bond yield.
Simply put, market bubbles are difficult to understand and predict.
The Purse Podcast
Women, money and power
We cover the following in our conversation:
Women and power
Women’s relationship with money
Building wealth
Female investors
Investing in women
Gender parity
and more!
Listen on all podcasting channels including Spotify and iTunes.
Coffee Break? Read This
We’d love to hear from you. Get in touch with Jana via the The Purse website or tweet @jointhepurse and @janicka.
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The Purse provides content for informational purposes only, we do not recommend products or services or provide investment advice. Please do your own research or speak to a financial advisor.
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