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A couple of news items caught my eye this morning. Portentous omens of troubles in store perhaps? Firstly an announcement of record high street lay-offs and secondly a fall in house prices in February the first for 8 months. Certainly stockmarkets appear to have steadied a little this week after a big run up during February.

Perhaps more worrying and symptomatic of what the bears have said for quite a while about incipient inflation, is the high interest rates of some of the weaker economies around the world. It seems that Brazil has an official rate in the high teens while even Iceland has over 10% (doubled in 2 years). The catalyst for chaos last week was a Fitch ratings downgrade of Iceland’s debt. That alone caused the Iceland krona to fall 9% against the US dollar and other currencies followed suit. To offset these problems and settle currency investors, Mexico and Brazil paid off some large international debts. On the other side of the world in Japan the yen rose sharply against sterling, dollar and euro marking an end to a long term trend. That country with it’s extremely low interest rates has been the source of cheap money and has funded the ‘carry’ trade for many years. Allowing traders to borrow at cheap rates and lend to the Brazils of this world at very high rates of interest. Lucrative if you can excel at it. When the worm turns though, beware. If contagion crosses boundaries like bird ‘flu then what price the US economy. Rates in the USA are forecasted to rise. Will that light a fuse? Time, as usual will tell.

The February rises on many exchanges brought markets to new multi-year highs. By contrast Japan which had been doing well in 2006 was actually considerably lower, confidence being shaken by the Livedoor episode amongst other factors. I still subscribe to my comment last month regarding the amount of money going into UK stocks from institutions and individuals being the driver and the end of March might be the point of change. Some commentators in France have mentioned some inauspicious occurrences they expect may take place around 20th March. Watch out. Perhaps the HSBC economist I quoted last month will be proved right.

Oil seems to be moored in the $60+ area with an increase in inventories in the US countering the decline in Nigerian production due to attacks on workers there and the explosions at Saudi installations which seemed to be terrorist attacks. Even Iraqi production is near it’s lowest level since the US-led invasion, for similar reasons of security problems.

Looking on the bright side. Last Friday saw many UK stocks hit new 52 week highs. Amongst stocks in that rarified position, that I regularly keep an eye on even if I do not own shares, were National Grid, Persimmon, Kenmare Resources, Ashtead, MITIE, Stepstone, Airpartner, Broker Network and Corporate Synergy Group. In addition three companies in the debt relief business, i.e. mutual competitors. Namely: Debt Free Direct, Debtmatters and Accuma also hit new highs.

One contrary mover is Pursuit Dynamics which Mobius considered at one time. This share hit a new low over 52 weeks.

Sectors that have excelled over two months, listing the top three, are, Industrial Metals (+22.46%), Oil Equipment& Services (+21.15%) and General Financial (+16.85%). At the other end of the spectrum are the three Telecoms sectors, Fixed Line, Mobile and General all down about 5%. Understandable, with competition stiff and the likes of Vodafone and C&W dragging indices off. The club portfolio still looks healthy although largely founded on the strength of the mining sector. Up 9% in 2006. Long may it reign. I feel somewhat vindicated by the recent rise in Morrisons share price after trying to persuade the club that it was on the mend. Notton Sobs bought in June 2005 at about 180 and will hold until it reaches 220 at least.

Good investing to all

ML March 1st 2006

Acknowledgements to Daily Telegraph and FT.