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Global Economies

Inflation is now part of the calculations for strategy and prospects in most countries. Here we are used to importing a great number of cheap manufactures, services etc from other countries, which in general is deflationary. However the trend of high commodity prices, including food, because we are a net importer of all these items, is hurting now. Consequently UK manufacturers (the few that are left) are struggling with costs in an attempt to maintain some profits in this savage downturn.

Inflation trends have caused the US to consider raising interest rates, while the Eurozone continues to hold a firm line which is causing aggravation in Spain, Italy and other non-core countries. The UK meanwhile is pondering (this week) which way to go next time. Under the current circumstances a couple of months on hold would steady the ship. While developed economies stay at high but bearable rates, emerging countries are on average above 10% and many are stratospheric at between 15% and 35%. Not to mention Zimbabwe. Understandably, the poorer populations in those countries are struggling with high prices on living essentials which must be unbelievably hard on them.

UK Economy

The credit crunch is still not over. House prices in the US have fallen 16% in 12 months and may fall a further 20% in future. Here in the UK, prices continue to slide and the housebuilders are in slump. They may well have been at their SP lows but their balance sheets are looking shot. It may take many months for full recovery and for that to happen credit needs to be available to good risks and the rise in unemployment may need to peak. Worries amongst the vulnerable section of the population will panic potential new buyers. The hard facts are that house prices must fall and only that will bring back normality. The bubble must burst totally.

Banks are in their reporting season and it is not a pretty picture. To pick one. Alliance & Leicester, now subject to a foreign takeover using arguably overvalued Euros, announced a profit of £1.1m cf £290m last time. Oh dear! They all seem to be in the business of airing as much dirty washing as they can but similar stories will come round next time one suspects.

Manufacturers are starting to struggle so their next results are not likely to make good reading. It will be a case of survival mode, as orders dry up and buyers keep their hands in their pockets.

UK Politics

The Government of the day and their hapless PM, Gordon, are struggling with increasing scepticism from the electorate. Many MP’s know their jobs are on the line so are looking for a change of leader sharpish. Time will reveal all. Do I detect a lack of people rushing to take over by stepping into the breach.

Commodities

At last the commodities boom is weakening. A combination of slower demand for oil, base metals and soft commodities and a withdrawal of speculators (under pressure from authorities) has taken it’s toll and increased supply available seems likely to normalise trading in the coming months. This move in turn will eventually break the inflationary spiral, thus letting the World off the hook In the meantime things look ugly.

UK Stocks

Significant companies (apart from banks) issuing serious tales of woe in the last week were Ryanair, BA and Prudential while several miners and oil producers were still able to report sound, if not, encouraging figures.

New Highs last week were 11, substantially outnumbered by New Lows at 103(inc AIM 55 and inc 16 Investment Cos). Less traumatic than last month but still murky. These figures again show how smaller cap firms are being affected worse than larger. In the UK, only two sectors are positive since Jan 1st, Industrial Eng and Oil Eqmnt & Services. All other sectors are negative for the year so far with Leisure Goods now down 34.8%, Forestry & Paper down 41.2% and Gen Retail down 36.6%!!

You do not need to be a mathematical genius to realise the significance of these negative trends and their ultimate effect on the wider economy.

Mobius investments

Mobius will not have a meeting in August. Last time we were all a bit dismayed at the way our portfolio was being hammered. The last para above explains why.

Currently Mourad is exploring a new tactic of selecting a handful of shares for consideration by future meetings, giving members a chance to discuss prospective companies before a purchase decision is taken while learning about the process. The intention is that all members should have prior opportunity to research and consider the proposals.

Oil price weakness has upset JKX while Bodycote and Cookson also slid with the market. This leaves us with a tiny toehold in the market but ample firepower in the shape of cash to take advantage of any future rise in the market. 2009 anybody?

No apologies for repeating the following mantra.

Martin Longman - Acknowledgements to Daily Telegraph and FT.