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Global Economies and markets
Last week saw the largest fall in markets for a number of months. Minus 3.8% in the UK and minus 4.1% for the S&P 500 in the US. Although it left the FTSE 100 above 5000 there are more and more experts willing to predict a more serious pull back within the coming weeks and maybe before the year end. Remembering the mobius competition, which has been running for 12 months, to predict the FTSE 100 during this month, perhaps the winner could be anybody…even Bob.
There are so many factors that can influence market movements and of course the correction could be quite strong due to the summer rise that has occurred. The recent reporting season in the US was fairly well received with some companies exceeding forecasts, but some dribbles of bad news contributed to last weeks retreat.
The BRIC economies and Asian emerging markets have been behind a lot of this years strength. Their strong recovery and particularly the ability of China and India to maintain very positive growth (above 5%), has kept the World on the move. A sign of the times is the 2% foreign investment tax to be imposed imminently by Brasil which is experiencing heavy capital inflows for investment purposes.
The Baltic Dry Index was moving lower through September. During October it was a little volatile, trending alternately up then down. It is now back above 3000 and seemingly intent on further strengthening. Perhaps it has completed a double bottom which I am sure the chartists have noticed
UK Economy & Politics
Government initiatives continue thick and fast but ill-thought examples are soon followed by withdrawals making them seem like a cabinet team due for scrappage and then renewal. They have extended the scrappage scheme, finding it very useful as a local stimulus to keep factories going. However they maintain that VAT will revert to normal at the year end. Interesting to see what effect that has on the annual Christmas splurge.
The constant bickering between Cameron and the PM is quite pathetic but at least the Government is now admitting that the national finances are so parlous that they will have to rein in spending early in the next parliament in order to steady the ship. Thus, following the Tory outlined strategy.
House prices and new house sales are in many eyes the key to many problems in the economy. The rise in prices over the last three months has been welcome but only covered a low volume. Also the rise itself is weakening making prediction less reliable as we are only talking about fractions of percentage points above (or below) nil growth and of course we are entering the traditionally weak winter period.
Commodities
Oil has been strong last month, reaching $80 for a time, but falling back recently, with Brent touching $75 again. Gold too has been strong and is holding between $1030 and $1065 consistently, which may suggest it will stay above $1000 for some time. There is a Gold Conference scheduled for London in late November and it will be interesting to hear the chatter which comes out of it’s deliberations.
Other commodities are still fairly strong but showing signs of metal fatigue i.e. considerable choppy market pricing. In the light of that miners are also exhibiting volatility. Might this presage another downturn in both commodities and equities?
Currencies
The dollar has been weak for many months now and is having a weakening effect on the oil price while driving the gold price higher. While it pays peanuts in interest it has become a favourite country for the carry trade. This is the activity whereby investors borrow cash in dollars, if they are able (at low interest), and invest in the currencies of countries which have higher interest rates. Famously carried out by Japanese housewives in the past decade and probably continued to the present but not to such a high volume.
UK Stocks
52 week highs and lows were modest this week. 32 new highs and 5 new lows. There were many sectors where no companies troubled the scorer as they say in cricketing parlance. But, perhaps significantly there were 3 examples in both the Food and Beverage sector and the Support Services sector. Similarly to last month, we had 8 sectors in negative territory and 24 positive at plus 20% or greater. By contrast to the summer months only eight sectors are in negative territory for the year with 21 sectors achieving plus 20% since Jan 1st. The FTSE Small Cap index and the FTSE 250 are up a similar amount to last month confirming that the market is starting to mark time.
Mobius investments
Mobius have continued to sit on their hands through October, unsurprisingly. The October meeting had to be rearranged to try and get more members available to attend. Hopefully we will have a good attendance and can make some good decisions to consolidate our 2009 gains.
Several shares in the portfolio have gone on the back foot with Persimmon and Shanks some way off their highs. Others are becoming volatile, with Qinetiq jumping 15% one day last week - on news of a fresh Chief Exec and Clarke jumping on Friday but only back to where it had been in recent past.
Our portfolio is therefore not looking quite as rosy but by no means disappointing either. My suggestion in the last newsletter was not seen by the club but if we had followed it we could have taken some profit from Shanks and Shell I believe.
On a personal level I finally decided to invest in India by picking up some stock in JP Morgan Indian IT. I look forward to holding it for a long time and will probably add on weakness.
Three members, James (plus wife Lis), Mourad and Martin, joined forces at the Investment Club Conference to man the club stand. It was a very interesting day. Plenty of good short, but intensive lectures by members of other clubs. In the early afternoon the auditorium was packed. I found it very stimulating and will try and attend next year as I hope other members will too.
Martin Longman - Acknowledgements to Daily Telegraph and FT.