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Global Economies and markets

What a turbulent year that was? Ending on a high note with low volumes but a typical Santa rally. Statistics have been freely quoted and some have been simply mind-boggling. Probably very few investors managed to get the full rise from some of the biggest movers but there were enough for everybody to achieve some outstanding successes. Anyone with a strong stomach and a smell for a bargain may well have added perhaps Barclays to their portfolio in March or perhaps a mining share in late 2008. The recovery and the profit for the lucky or wise will have been golden on either.

As things stand at the beginning of 2010 several worries are festering. When will QE be ended? When will inflation take-off? Will the next parliament be strong enough in UK to do the right thing or will it be hung? Will the pound keep its triple A rating or will we join the ranks of Greece and Ireland amongst others? Will the US dollar continue to weaken, which dominated the 12 month period or will we see a rebound? Will sterling drop to Euro parity? It only just avoided it twelve months ago.

Signs of hope centre on SE Asia where China and India continue to grow, sucking in resources from Russia, Australia and Brazil as they go. But recent Baltic Dry Index weakness (continuing to tumble towards 3000) suggests that trade is much softer than it was through autumn. The US, although suffering, has shown the odd green shoot and the early fiscal stimulus should soon be showing a powerful effect even if consumer demand remains sluggish.

The VIX index this week stood at 21.68 at year end which is much better than the beginning of December when it stood at 24.7. Years worst was 57.6 and best was 19.25. All in all, that suggests we should not be too downhearted.

Many writers have indulged themselves with forecasts of a better second half for 2010. A high proportion see an increase in double dip fears for house prices and shares during the first few months at least until the election is settled. The lower forecasts centre heavily on the probability of a hung parliament which would be disastrous for sterling. The larger the winning majority, the better the prospects for shares. However we will probably not know the size of the majority until after May 10.

UK Economy & Politics

I feel a great deal of boring arguments will drive us to sleep over the next 5 months. Hopefully he will call an election early and then our misery will be shortened.

Commodities

US heating oil stocks weakened (while still healthy) due to poor weather and Iran worries pushed the oil price up to $80 again. Barclays reckons oil will touch $100 this year. Of course oil is like gold and both their prices are buoyant when the dollar is weak. If the sabre rattling about Iran continues who would like to forecast where prices will end?

Another interesting gold snippet (see last months letter) centres on Vietnamese gold dealers. After the government of the country devalued the currency they have now said they will stop the gold trading floors (est. 2007) at the end of March since too much local currency is going that way. Roughly $1bn a day turnover apparently, but retail gold sales and jewellery are unaffected.

The FT estimates that gold demand has fallen slightly this year. By category of usage the annual change from 2007 shows Investment buying up tremendously while Industrial use has reduced and jewellery is down. Investment buying does seem to be fully correlated with dollar fears. Gold ended the year up 24.8%, a period of weakness may ensue.

Currencies

Main beneficiaries of the weak dollar have been the commodity currencies of New Zealand (+25%), Australia (+28%), Canada, Norway, Brazil and Chile.

UK Stocks

52 week highs and lows increased this week. 57 new highs (inc. 20 Investment companies) and only 2 new lows. Similarly to last month, we had 5 sectors in negative territory and 31 positive at plus 20% or greater. From my perspective two interesting moves were a new high for Avocet(gold miner) and Robert Walters one of the shares mobius were previously involved with.

Mobius investments

Mobius had a poorly attended meeting in December but what we lacked in numbers we made up for in investment decisions. The runaway winner of Decembers Semi-sys choice was Fisher (James) & Sons. Two other shares had caught our attention and although votes for the remaining four were lowly we decided after due consideration to purchase lesser amounts of Penna Consulting and China Shoto. These investments give us some interesting coverage of other sectors particularly the company with Chinese exposure with a very enviable growth record and high cash balance. We are now close to our preferred ceiling for share numbers but have sufficient cash to easily accumulate shares in our strongest previous choices as wished.

Happy New Year to all

Martin Longman - Acknowledgements to Daily Telegraph and FT.