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Global Economies

So often in past newsletters, I have said that one month can see all forecasts reverse. This month is the same.

The FTSE 100, following it’s recent strong run from March reached about 6400 only to collapse back to just below 6000 in week commencing 2 June. Although it is clawing back lost ground I would not bet on it holding up. I expect a steady decline ahead through the summer months as more bad news seeps out.

The Dow can jump at any semblance of good news such as an announcement that Bernanke wishes to see a stronger dollar or that motor fuel inventories in the US are rising.

There is still much bad news over the pond with weakness in large financial companies and stories about families downsizing their new car orders. Of course the political story will be in limbo for a few weeks now Obama has lifted his party nomination but it remains to be seen whether he can be the first black president. So we should expect plenty of razzmatazz in a few months which may obscure the bad news on the financial side.

Both here and in the US, large transactions involving giant companies tend to stir the pot. Vodafone was this week part of the action as it strengthened it’s footprint across the country. It is still not a brand over there but it’s stalking horse Verizon(of which Voda owns 45%) is number two already and the latest deal will see it become number one.

Interest rates are steadying in the major economies and it is thought that the next move might even be up in UK and US in order to combat inflation although they could be announced later in 2008 and into 2009. Time will tell if the measures taken over the last year will prevent recession and whether the next moves will keep inflation at bay. Certainly, relatively full employment in UK is no defence against inflation but the statistics as they emerge may soon tell a different and more menacing story.

The pound has been weaker against the dollar and the Euro although more recently it regained it’s poise against the Euro as analysts considered likely interest rate moves and manufacturing data which itself is staying reasonably buoyant. But how long for?

Emerging economies are having to adjust quickly to the spike in oil prices. One can only guess at the impact on the poorer consumer in places like India and China as the price of fuel soars locally and food also becomes less affordable. The shortage of rice has even been seen in the UK as some rationing has apparently been introduced.

UK Economy

Retailers continue to struggle and bank shares are at a very low ebb. Rights issues are order of the day. It seems some housebuilders will not be far behind. Barratts and Taylor Wimpey almost certain, and Percy a possibility. With householders facing tight credit terms, the economy is bound to be squeezed. Details I mentioned last month. One cannot help being very pessimistic about the UK going forward as most budgetary indicators turn negative which will lead to the sums going pear-shaped.

This is the time when financial companies with cash or the ability to raise it can enter the market and buy assets at knock down prices.

UK Politics

The situation looks as murky as it has done for a long time. Even the large majority enjoyed by the current government is unlikely to save it. The Crewe by-election was a taste of things to come as voters desert in numbers. It’s ‘the economy stupid’ is the most important factor and G Brown lost the plot some years ago when he started fudging his golden rules.

Commodities

Most commodities are showing some weakness as demand reduces and forward orders are unwound. It seems likely that speculators will be less gung-ho for a while to observe what happens over time. There is still important demand for the huge growth in BRIC economies but they have also got inflation problems and will have to adjust their sights lower.

UK Stocks

New Highs last week were 32 (inc AIM 10) outnumbered by New Lows at 98 (inc AIM 42). These figures show how smaller cap firms are being affected worse than larger. Significant new lows were big housebuilders (inc Percy), Clinton Cards and RAB capital (a big buyer of Northern Rock during the crash).

Leading sectors were Industrial Metals, Industrial Eng and Electronic and Elect Eng out of 11 rising sectors. 36 sectors have by contrast now fallen this year with Leisure Goods now down 31%!!

Mobius investments

Club investments looked fairly healthy at the time of our last meeting but some cracks have started to appear with Clarke T being close to being sold. JKX is still our star and hopefully will keep on the upward path. Interestingly many smaller oil companies which are big in exploration and production have been at the forefront of positive announcements recently including Dana and Tullow. Perhaps we should consider another selection in an effort to strengthen the portfolio. The smaller fry are bound to consolidate over time as resources in the shape of proven oil reserves have increased in value with oil spiking to $135

Personal investments are precarious with be still weighted towards cash but I am glad to say that Hamworthy results (early this week) which have obviously been fairly well trailed took the SP to 570p). Above my price to my great relief. After a 12 month wait!! Wish though, that I had courage of my convictions and had bought more at their Jan low of 380p.

Club Membership

We are pleased to announce that we have enrolled two new members; Mehrdad and Tom. This move will hopefully create a stronger club with increased assets and ability to invest positively when stock markets recover as they eventually will. We extend a warm welcome to them both.

Martin Longman - Acknowledgements to Daily Telegraph and FT.