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Global Economies and markets

The FTSE 100 has recorded a gain of 4.9 % over the first quarter its best effort since 2006. There are plenty of worries around but the authorities are maintaining quantitative easing –for now at least. Let’s hope they don’t change tack to coincide with the general election.

The Vix Index (worry bead indicator) has fallen almost 20% over the same three months which suggests that for investors, risk aversion is very low. Therefore they are prepared to take bigger risks than normal. Something will be sure to come back and bite them all when least expected. So do watch out for a reversal of market trends. It’s low for the year actually occurred in the middle of March when it nearly fell to 16 and that was a multi-year low. In January it was briefly at 27.

Current announcements from across the Atlantic suggest that the jobs picture is not as rosy as expected. In the Eurozone too, the unemployment rate had risen to 10% ,the highest for 11 years. Consumer price inflation had also risen to a 15 month high of 1.5% during last month.

At present the developed economies are benefitting from the benign environment which is supported by QE being in place and extremely low interest rates. Few countries have started to raise rates yet, only emerging economies and commodity suppliers like Australia. The return to normality must occur sometime and that will be the test for all.

UK Economy & Politics

The election campaign moved up another gear this week with a head to head match between would-be chancellors. It was a slightly disappointing programme, like a phoney war, with none of them really lighting a fire. I can however see that the government are now embracing a belt tightening strategy which they previously refused to acknowledge.

The risk of a hung parliament outcome is still all too real. For a country in such dire straights economically it could spell absolute disaster. We certainly need a strong leader and enough of a majority to carry out the legislation necessary.

Commodities

Oil as strengthened a little of late and is close to an 18 month high, even though there is a reported rise in US inventories.

Some metals are also buoyant including iron ore under the new trading agreements (more frequent price setting) and nickel. Gold has held fairly steady over the last month and has not looked like falling through the $1000 level.

The Baltic Dry index rose strongly at the beginning of the month and then endured a large declinein the second half of March, finally dropping through the 3000 level. It has just risen slightly again but there is as yet no indication of strength or buoyancy. The general level is holding roughly at the level of a month ago.

Currencies

Sovereign debt is in a dire state for all the major economies, having increased by 70% since 2006. To put this situation right suggests that fiscal tightening of between 8 and 10 percent every year for 5 years will be required in Japan, US and UK to get back to 2007 levels. The excess leverage is mind-boggling and this on top of personal debt levels, which households are struggling to cope with. As David Roche (and Bob McKee) argue in the FT today (April 1st ), “creating more sovereign debt to finance another thriftless consumer binge and more asset bubbles down the line is no way to achieve sustainable growth. Unless tackled immediately the excess of sovereign debt will be the next chapter in the credit crisis.”

UK Stocks

New highs at 78 stocks and new lows of 21 stocks show a numerical increase over last months figure. They mainly seem to be spread across all sectors. The majority of new highs were in Investment Trusts (ex private equity (24) and AIM market (16).

Sector changes this year were not too promising until recently but as at last Friday 27 March, 40 sectors have risen and 8 sectors have fallen. The three highest rising sectors are Forestry and Paper +38%, Industrial Metals +37% and Industrial Eng +22%.

Mobius investments

Mobius had to abort the meeting scheduled for March due to low anticipated turnout. However, simultaneously the semi-sys beauty contest for March was in full swing. Even this proved too much for some members and the selection of Pace was secured by just three of us.

Shanks which had promised so much while its SP was inflated by the bid speculation fell dramatically back towards the 100p level and ended up being sold. We enjoyed a good profit but missed a golden opportunity. The company still has good prospects but will not regain their year high unless another bidder steps up to the plate.

Martin Longman - Acknowledgements to Daily Telegraph and FT.