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Global Economies

The rally continues. Apart from the occasional bad day or weak week the general mood becomes more positive month by month. I am as big a pessimist as the best of them and I still believe the markets will go sour over the summer and autumn but I am pleased that Mobius is still investing steadily. Certain sectors are doing all the running, particularly the banks (although this surge is thought to have run its course), others meanwhile are marking time. The Bric economies have put in a sparkling performance over 6 months although noticeable more especially from March 3.

The VIX (fear index) has fallen below 30 for the first time since September which suggests that stocks are seen as a lot less risky than they were at the turn of the year. A counter to that is gold which is rising closer to a thousand dollars an ounce. Whether mainly safe haven buying or industrial and jewellery demand I do not know. A prediction I noticed three months ago, namely that gold would reach 950 this summer has turned out to be true (now 980), but owed a large part of the boost to the US dollar which has weakened all round even against sterling. (Is that possible?)

The Baltic dry index is having a very strong run just now and soundly trashed the 3000 level last week (3494 now). A 50% rise in about a month. This seems to be associated with increased shipping activity in certain commodities.

Today we may see another giant of US industry, namely General Motors slide into bankruptcy. If it is eventually reborn as GMII then perhaps we shall witness a new generation of more sensible, modest and greener cars coming out of Detroit. Not before time.

The financial and industrial strength of the US has been wasted over 2 year and it will take a while before it’s tarnished reputation is rebuilt. Now the Chinese have seen through the treasury bond scandal they will be eager to reduce their holdings and thus their risk. Even the other friends of the US like Japan and Saudi will also want to reduce exposure over time. Without exaggeration I think an enormous turn has occurred which will become more obvious as this whole sorry episode works it’s way through to a conclusion.

As I noted many months ago in this newsletter, a real recession will require the destruction of some industrial capacity and this is what is taking place.

UK Economy & Politics

The expenses scandal has exposed many in Government to scathing criticism and public ridicule. We need an election like yesterday but it looks as if dear Gordon will brazen it out as long as he can. With many cabinet members openly caught out by their own money making scams I don’t see how they have the gall to carry on. Thankfully some have announced intention to resign and not offer themselves for re-election. The whole sorry saga has been a godsend for the hacks, but I thank the Telegraph for giving it all a good airing. Only a general election can sort it out and ultimately the rules will be tightened. I imagine the council elections and votes for MEP’s will shred labours representation even though the other two parties might also get short shrift. I fear the looney fringe will reap benefits as votes look round for an alternative voice.

Commodities

Strengthening commodities in early May have continued their upward trend. This movement has bolstered the BRIC economies as mentioned above. Oil price has moved to $65 (+7% last week) with a suggestion that it will go above $75 soon and has helped Russia significantly. Iron ore demand has helped Brazil. India and China have participated in the rebound which has helped all their currencies also. Perhaps they will lead us out of trouble seeing as their economies have not gone negative.

Currencies

Significant currency movements have occurred recently, particularly with Brazil, Australia and Russia moving up strongly due to their strong commodity based economies.

UK Stocks

New highs at 19 (inc AIM 6 ), outnumbered lows at 7 (inc AIM 5 ) this week on the exchange. Reflecting the fact that some recovery is masked in these figures because individual stocks are not back above their level of 12 months ago. When they do reach that level there will be a flood of new highs presumably. The other side of the coin is that as companies are publishing results investors are re-assessing risks and rewards with many firms suffering the backlash when they are regraded.

Sector changes are as follows. Industrial metals (a very small number) are now up 314% since New Years Day. No other sectors come close although Tech Hdwre and Eq is up 53% and Oil equipment and Servs rose 45%. Mining and Basic Materials follow closely. Interestingly, the FTSE100 is nearly level over the five months. The laggards are the two telecoms sectors, Fixed and general. Minus 27 and 17 respectively.

Mobius investments

Mobius investments are looking somewhat healthier and the majority of individual stocks, if not all, are in profit. We continue to make modest investments while keeping an eye on the total assets invested. We do not intend to blow it all at this stage in case there is a further collapse just around the corner. In addition there will be clear winners emerge from this recession and we wish to have cash available at all times.

Recent investments have been in Qinetiq which produced a solid set of results last month. We have a ‘buy’ order on Synergy Health which we hope will fall to our buy price ( It does not seem to want to, but it pays to be patient).

I have to note with sadness that Ray and Lesley have decided to go to Australia this summer. Whether this will turn out to be permanent eventually, remains to be seen. A leaving party has been arranged for members but whatever happens we will miss his dry wit at meetings even if we still get it in e-mail form. To fill the gap we have an ongoing enquiry from a new potential member and we will welcome him at the next meeting all being well..

Martin Longman - Acknowledgements to Daily Telegraph and FT.