Newsletter November 2004

 

A month is a long time in stockmarket terms. In my first newsletter, penned before the presidential election I mentioned that certainty is what the markets look for and that is what they got. We all know what Bush stands for and we shall probably be treated with more of the same.

The latest trends seem to be upward for markets. But for how long? Unbroken to Christmas? Somehow I doubt it. Lets look at some of the current news. Gold at new highs, while France announces it will sell up to 600 tonnes over five years, roughly 20% of their reserves (I only wish Gordon Brown had such sensible timing for his action a year or so back). Of course that is part of a central bank agreement and was expected, so the market did not appear to react. Several other banks plan to sell  stocks but Italy has yet to announce it’s own sale. Of more significance, the comments of Alan Greenspan about the unsustainability of the US current a/c deficit certainly seemed to take the dollar lower and  be a stimulus to the gold price. (Not a lot of use to us as precious metal holders, since movement in the direction of one factor is balanced by a reverse in the other). On Thursday the House of Representatives had voted through an increase in the US debt limit of $800bn which was necessary to save the US from defaulting on its debts. Astronomical figures in anyones terms and obviously these are heady times. There is a plan by the administration to halve the fiscal deficit over four years but with the Iraq situation seemingly dire troops will be neede for some time to come and will surely affect the deficit.

 

It seems that all currencies of market significance are rising against the dollar. Asian economies particularly have put their dollars into US bonds, artificially pegging yields. Their central banks seem to be allowing effective revaluation of their currencies although China is not among them. At any time in the future those countries may step back into the market to buy a severely depressed dollar and this will lead to a volatile market for the time being, as currencies realign.

Just one more thought about gold. The price is at a 16 year high and shares in miners and gold funds like Barrick, Portman, Troy resources and Gold Bullion Securities all hit new highs too.

Having shuffled our worry beads around I turn to local news. Our last meeting on 17 Nov coincided with our AGM. (See minutes for election of officers for the coming year). After the trauma of the previous AGM, (least said the better), 2004 was an altogether more convivial and sensible affair and prompted serious consideration of our strengths and weaknesses as shown through 12 months of partly successful trading. We realise with hindsight that our timing has been poor, with the result that we bought shares that may have good potential but at an inflated price. Soon after purchase when the market moved against shares generally we were forced to sell the shares as S/L’s were breached. In many cases this was a pity since the shares in question have in the most part moved back towards or even exceeded their purchase prices showing that we could conceivably have made negligible losses with wiser purchase and selling policies. To balance the disasters when we had shot ourselves in the foot, there have been two shares which have justified our collective faith in stocks. Synergy (Bob’s Baby) has appreciated considerably following its results and alongside NHP (Mourad’s tip) is also near a 12 month high. To add to our euphoria MITIE has been strong of late (152p), causing me to reach for my chequebook and add to my personal holding. These price movements in our main shareholdings are good pointers to future. We hope to build on our success possibly by adding to our holdings when cheap buying opportunities arise. Our target for unit appreciation (120p) was missed by a mile last year as we hardly got out of the starting blocks (about 84p) but hopefully our new target of 100p will prove to be achievable if we get a fair following wind.

 

Another share, which was proposed by the Chairman, is London Merchant Securities. An interesting diversified company whose main assets are UK properties but it also acts as a venture capitalist and holds tranches of many companies around the globe. This company should benefit from a market upturn in any case but states that many of it’s early stage investments are close to fruition now. The results are due this coming week but recent strength in the share price could mean all the good news is already in it. Sadly we did not make an investment when the shares were at 183p. Now 197p, a new high for the year.

 

Well I have not managed to be very brief, as planned, but the news about the US and gold seemed quite significant and needed airing. Strangely, in spite of worries the markets have moved up since I last wrote. What will the future bring.

 

Just a few weeks to our Xmas meal and we look forward to seeing Allan and his wife in addition to Bob Conley and Jean. One of these years Mobius club will be able to fund the meal, 2005 perhaps.

 

A tip for those desperate for Asian exposure. “Investing in Australia is the safest way to play China” (a quote in the FT). They have the resources that China needs.

 

An easier option is Standard Chartered Bank which has 79% of earnings from Asia, and is a listed UK stock in which I have a very heavy weighting. But alternatives are BHP Billiton and Rio Tinto if you require the mining play,

Well folks next instalment December.

                                                                       

                                                                                   

Martin Longman - November 21 2004