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Global Economies

Last month we were fully in bear rally mode. The turn in the last couple of weeks has seen markets weaken worldwide. An extreme example was Russia where the main index that was up over 80% in the first 5 months, proceeded to lose 20% in a week. What seems to be becalming the market is a steady run of bad news perhaps summed up by the sentencing of Madoff who swindled $65Billion from 13000 very well heeled customers some of which were acting for many more individual investors. It appears likely that the evident weakness will manifest itself as a sideways trending index which may last for months rather than weeks despite the efforts of some analysts and broking houses to talk the green shoots up.

China and India may hold the key with their own economies still growing quickly albeit less fast. Certainly China’s intention to push their financial stimulus and continue to invest in infrastructure will continue to stoke demand for commodities like fuel and metals, which in turn will keep the wheels turning elsewhere. One cannot ignore the facts of the recession when one sees, services companies, airlines and all laying off workers or asking them to take extra holidays for no pay and accept wage restraint.

The Baltic dry index, in response to continued trading activity from China et al has become more volatile. After a strong run up to the start of June it weakened but is now in rising mode again but in similar way to the markets it is a much weaker rmovement than in May.

Each week I read some further example of problems in countries such as Dubai. Once touted as the biggest building site in the Middle East the excesses of the past 20 years are beginning to be apparent. The recession is very real and is starting to affect a majority of the people. The destruction of capital assets is happening as company bosses throw in the towel and capitulate.

UK Economy & Politics

TThe expenses scandal reached an expected conclusion with the speaker’s scalp firmly hoisted for all to see. The election which was watched closely by many of the public with more interest than usual, ended up with a Tory being elected who is not popular in his own party. It seems over his life he has veered from being right leaning to being of the left persuasion. It remains to be seen if he will become a good or an indifferent holder of the post.

Commodities

Oil duly surmounted the $70 mark but has taken on the malaise of the rest of the indicators i.e. weakness and a sideways trend. Gold retreated from it’s high and we will have to wait for a potential assault on $1000.

Currencies

The level of the US dollar is weakening against major currencies, which seems to be the wish of the new US administration. Where this will lead is debatable but one might expect the next major market moves to occur when the fiscal stimulus is withdrawn or wound down, especially in the US.

UK Stocks

New highs at 15 (inc AIM 5), outnumbered lows at 3 (all on AIM), this week on the exchange. Sectoral divergence is still quite apparent. Changes are as follows. Industrial metals (a very small number of companies) are still up 310% since New Years Day. No other sectors come close although Tech Hdwre and Eq is up 65% (53% last month)and into the third slot has leapt Personal Goods (a sector with only 3 constituents). Interestingly, the FTSE100 is now negatve over 6 months. The laggards are the two telecoms sectors, Fixed and general. Minus 20% and 16% respectively. What seems to be dominating markets is movements in shares where a refinancing has occurred or where they are recovering from a very low point such as Banking shares. The FTSE small cap and FTSE 250 are easily beating the All Share over 6 months.

Mobius investments

Our club investments are a little sad since last reported. Weakness has got to oil shares like Shell but we have bought RM group after a beauty contest was held. Our proposed investment in Synergy Health is on hold due to it being a rising share and our price is a deliberately pitched low. It is quite possible we will be able to purchase eventually on our terms but it is nonetheless annoying to watch it elude us as it continues to appreciate.

Ray has duly left for Australia and at the leaving party we all wished him well. To try and make up for our loss we have offered membership to James Allen and it appears that we have obtained another interested member albeit under the new probationary rules which will be applied to any new member. We look forward to having him aboard.

Martin Longman - Acknowledgements to Daily Telegraph and FT.