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Election brings change

Last month I wrote firstly about the election result and impending changes in the UK. Now it seems that theses changes are coming to the forefront and will impact on UK plc. The coalition is setting out the strategy further and Mr Osborne has presented his first budget. Market response to the latter has been positive with the pound rallying against the dollar. However, the markets are also throwing a wobbly about the possibility of a sovereign default, BP’s struggles in the Gulf of Mexico and a pronounced Chinese slowdown. The Shanghai composite Index has indeed fallen from 3250 to 2400 since Jan 1st 2010. Rather a shock to the global system.

Markets

At present markets are falling heavily after a slew of poor economic news, especially rather unexpectedly weaker employment numbers from the US and construction worries. Many others factors also not going in a positive direction. Most major markets have moved substantially lower, averaging minus 10% over the last two weeks of June. Chartists will know that death crosses have formed on major market indices around the world, including the FTSE 100, FTSE Eurrfirst 300 and the Nikkei225 but spared the S&P 500. A death cross is formed when the 50 day ma crosses below the 200 ma. Generally agreed to be a very bad sign and they are likely to presage a bear market often.

Baltic Dry Index watchers will be somewhat dismayed by the fact that it has fallen for 22 trading days in succession from it’s year high of 4209 on May 26th. This may indicate global stagnation setting in if not a full blown recession.

The VIX (worry bead) index is also under pressure falling slightly to 31.69 on Friday 2 July but still higher than when I wrote last month and far higher than the long term average of 20.

Commodities

Lower economic activity has led to lower commodity prices especially copper and gold although gold only recently came off its all time high and some analysts expect to see it get to $1500 before very long. Oil is down to $72 but still remains within it’s nine-month trading range of $70 to $85.

UK Stocks

New highs last week were 10 while new lows outnumbered at 32. A small majority of stock sectors are now negative for 2010 at 32 while 17 sectors are higher. Understandably the oil and gas sectors are the worst performers but on top of BP’s woes is a reduced demand for oil and gas products from all big users.

Mobius investments

This months meeting held at Ray Lawsons was very enjoyable with plenty of serious discussions. We decided to continue to pursue BG Group with the aim of raising our holding to £4k but trying to buy at the relatively low price of less than £10. I am pleased to report that we managed to achieve our aim since the meeting when market weakness put the target into our price range. The SP promptly rose again the following day. Other shares in the portfolio are struggling somewhat, particularly our China focussed share China Shoto and Persimmon sadly suffering on fears for the housebuilding sector as a whole in the UK. Persimmon reports in the coming week so perhaps we will get a price rebound.

Mobius membership

Sadly I have to report that James Allen has also decided to resign (see story about Anita last month). He has recently left npower but fortunately is starting tomorrow with BG Group. We wish him well, thank him for his contribution to Mobius and hope he can work miracles at his new firm which will manifest itself in a

Martin Longman - Acknowledgements to Daily Telegraph and FT.