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Election brings change
The Some members may have noticed that the May letter was not produced and therefore was not circulated. I was just too tied up with cousins from New Zealand and en-suite alterations. It probably saved you from more moans about the economy and politics.
Certainly the election has changed everything. A totally new ball game. Whether it will do us any good, too soon to say. Truth may be, that at least it could not be worse than the previous team. The UK must reduce it’s deficit and put all it’s finances on a sensible safe platform from which it can grow in the areas of expertise where it can build a future. We are not short of brains or the investment capital needed to create further manufacturing successes and thus increase our wealth further.
In the meantime we have plenty of sharks surrounding us. The Euro (at four year low against the US$) has been pounded as Spain the second domino to wobble has had to resort to a strong dose of ill tasting medicine. How many more will succumb before the rough seas become calmer. The sovereign debt crisis was well forecast from March onwards, so unsurprisingly it is now taking it’s toll.
China is also the source of some worry. If the squeeze being attempted by the government is unsuccessful then the World will be in a vile predicament. Whatever the end result, it seems as if the housing bubble in cities like Shanghai will bring a sharp shock to aspiring homeowners and therefore a tumble in prices. For the rest of the World it may mean a reduction in commodity prices and therefore a shock in stock markets especially affecting BRICS and mining companies.
Geopolitical concerns surround the Korean peninsula and one would not like to bet against a little local war or at least another skirmish or two. I might be more inclined to bet it would become a full-fledged conflict if the US had not been tied down in Iraq, Afghanistan and nose to nose with Iran.
The worries that beset us are leading to investors fleeing to the safe havens of gold and the US$. Other currencies look woefully exposed especially the Euro and Sterling. In the last few days of the month, though, stock markets regained their poise and the dollar then weakened. Deutsche Bank pointed out that the Dow has crossed and recrossed the 10000 level sixty times since March 1999.
Europe was also beset by travel problems as an Icelandic volcano decided to take a hand and help BA Unite union members to cause air traffic chaos. Not continuously I am glad to say but frequent enough to upset many innocent travellers by ruining their business trip or worse their holiday excursion.
Summing up all these risks to stability the Vix index was initially high before relaxing slightly to 30 but that is still elevated from it’s long term average of 20.
The significant feature of the current situation is the amount of volatility evident and one might imagine that a few more bits of bad news coinciding with each other may send the FTSE much lower ( although pundits seem convinced the bull is raring to charge again). After all, the biggest contributor to UK pension fund well-being is BP with it’s massive oil leak looking set to undermine it’s dividend yield. At present, it may be oversold (down 25%) but until the well is plugged, the pollution and therefore the ultimate cost to the company, can only be wildly guessed at.
Baltic Dry Index.
Amongst all the bad news this index has shown enormous strength over the last two to three weeks. After languishing below 3000 it hastily rose to over 4000 this week which suggests that shipping rates are buoyant and therefore that general trade is relatively strong.
UK Stocks
New highs last week were 14 while new lows were almost the same at 15.. Rather less movement tan usual. The majority of stock sectors are now negative for 2010 which is a big alteration since April report. However, Forestry and paper is still the biggest rising sector and Life Insurance the biggest faller. Cyclical companies are in the forefront of the risers while Retailers and Real estate sectors are feeling sorry for themselves.
Mobius investments
The last Mobius meeting had some tough decisions to make. It was decided not to allow Tara to join the club. We did however feel bullish enough to make some accumulative investments bringing some individual share holdings up to the current maximum of £4k. We also decided to proceed with instituting a monthly subscription with Selftrade, into a selection of Investment Trust funds. The funds selected are JP Morgan Indian Investment Trust [JII], JPMorgan Russia [JRS]and Blackrock World Mining (formerly Merrill Lynch WM a previous investment of Mobius club).
Our hopes were slightly frustrated when we discovered that only JII was available from our stockbroker so we need to find an alternative channel to commence investing in the other funds.
Mobius membership
It was with some sadness that the club received Anita’s shock resignation due to the heavy workload, especially family commitments, she is experiencing. Hopefully, in time these problems will ease and she will be able to rejoin and take a full part in our investing and social activity. I know that we have all enjoyed the contribution she has made to Mobius decisions and the pleasure we all share in joint investing.
Martin Longman - Acknowledgements to Daily Telegraph and FT.