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Global Economies

I thought the events of last month, with wholesale bailouts particularly in the US but also in Europe catastrophic and unlikely to be repeated on such a scale, but this month has seen even more horrendous gyrations in markets and currencies. So much in fact has taken place, mainly unexpected to the uninitiated, that it is difficult to recall it all. Has the final chapter of the horror story been written or are there some more twists to unfold?

The multi-billion dollar bail-out was duly signed by the US government but on consideration by pundits was deemed inadequate. Later in the month commodities fell through the floor thus taking away one of the props of the stockmarkets everywhere. Mining and resource firms fell and developing economies which often rely on commodity extraction and production found themselves in equally worrying positions to developed countries. So much so that Russia and many other bourses had to be barred from trading by the authorities on several occasions as volumes and activity boiled over and stocks crashed.

The tumbling markets put many big investors and international funds on the back foot. Shifts in sentiment and margin calls put hedge funds in jeopardy too. The banks still remained unloved as the Icelandic banks collapsed under a cloud of mistrust. Iceland had been sailing close to the wind for some years. Raising enormous sums from investors by paying ludicrous and unaffordable interest rates then relending leveraged funds to entrepreneurs who were scouring Europe for solid assets such as property rich high street names. It had to end in tears and it did.

For the victims of this excess one must wonder where it will end, mainly unhappily one imagines. But there is no doubt many wealthy people have walked away smelling of roses and with even fatter bank accounts.

Governments have given assurances but how good are they? Time again will be the judge. It looks as if the poor taxpayer will have to pick up the bill.

UK Economy & Politics

One wonders why we did not pass a law some time ago to prohibit banks from buying SIV’s as the Spanish government did. Spain has a property problem but did not hoover up more problems from the US. This has stood them in good stead in contrast to the US and UK and others. The dangers were there for all to see but were obscured from greedy eyes. Brown was Chancellor to his shame.

One of the most keenly watched statistics in coming months will be the unemployment total. It is on the slippery slope and the trend will not end until later next year or 2010. Government finances are rocky and borrowing is ballooning. As the Government proposes increasing spending households are cutting back. What a mess. The high street is in tatters and a seriously bad Christmas is in prospect.

Currencies

In last months newsletter I recorded the first downward moves of sterling relative to the US$ and Euro. This trend has continued and the pound hit a multi-year low. There are more convulsions to come as interest rates are cut and currencies realign further. This week may see a large cut in UK rates . 0.5% may be favourite but a fall of 1% is possible. One can foresee that we shall soon be back to the months after 9/11 with crumbling markets and the US giving the world some tremendous stimulus which may ultimately ignite the next bull run.

Commodities

Commodities are now at unbelievable lows. Just 12 months ago stratospheric highs were being recorded every month, now we are plumbing the depths. The prospects for mining firms are much less rosy with escalating costs and crumbling demand. They will still have financial strength from the last trading statements which could mean satisfactory dividends next time but beyond there will be pain. One bright sign for economies and individuals is the collapse in the oil price this is now percolating through to the pumps and doubtless all energy including natural gas will follow down in synch. Ultimately that will help householders to balance their spending and ease the mortgage pain.

UK Stocks

Mobius kept their powder dry for another month. A selection of shares was given due consideration at our meeting just before markets plunged again. We agreed to keep an eye on Diploma and consider a purchase if volatility showed signs of reducing. Since the meeting suggestions have been made that many FTSE 100 companies are showing strong yields at current SP’s. BP was strongly backed but too few members took part in discussion which showed a lack of confidence in the market which must be respected. There will be a time and many gurus like Soros, Buffet and the UK’s Anthony Bolton are advising that values are available and investors should begin to look. Some pundits however predict a short recovery in markets which will later be followed by an even worse dip. In my opinion that does not mean we should eschew investment activity entirely but we would need to protect our investment with more flexible stop loss policies.

After a very bad month the FTSE100 prevented the worst recorded month from going on record by ultimately recording the biggest ever rise of over 12 % in the final week. This was mirrored by markets worldwide.

New Highs last week were 11, substantially outnumbered by New Lows at 263 (inc AIM 113). These totals are very similar to last months. There are NO sectors in positive territory after 10 months have elapsed. Many are down by more than 40% and the FTSE 100 index is down 32%.

Mobius investments

Not much to report but hopefully we can begin to consider 2009 as the year of investment and I look forward to the challenge.

Social events

Next meeting is the 2008 Agm and will be held on a Friday we are also looking forward to attending our Annual dinner at the Gray Ox again by unanimous decision. See you all there.

Martin Longman - Acknowledgements to Daily Telegraph and FT.