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Global Economies

It has been the most unnerving month I can ever remember witnessing in the financial world, almost too much information to digest. So many different but related events taking place, I could write for hours. The story of Lehmans, Fannie Mae and Freddie Mac, Washington Mutual, HBOS, B&B, Fortis etc. is almost too difficult to comprehend. I am sure many eager writers will be lining up to write a best-seller for next year. [Perhaps Mourad will take up the challenge].

I feel that the final chapter of the credit crunch horror story is about to be written. Fear is ingrained and trust is in short supply. Bourses world wide have been filled with traders with heads in hands while suicides have been reported.

How will the story unfold? Will the multi-billion dollar bail out be signed off or will it be watered down or quashed? Many ordinary people in the US and other developed economies have not been affected in their ordinary lives by the problems elsewhere but this is about to change as jobs continue to be lost and businesses and properties continue to be repossessed in lieu of payments. There are many anecdotal tales about increased hardship. Until people have been personally affected they may be oblivious to what is really taking place and middle America is typical.

Obviously most people have noticed that fuel, food and other goods have risen, in some cases drastically, in price. Inflation is a significant risk factor but it may be peaking. If the Monetary Policy Committee agrees with the prognosis then maybe the next move in interest rates will be down substantially and as early as next week.

UK Economy & Politics

The government is still in panic. Politics makes for strange bedfellows but I believe Cameron’s offer to support Brown in any difficult decisions that require taking over this traumatic period is rather tongue in cheek and opportunistic. Brown though has been reduced to the impotent sub-prime minister. To keep saying that he will do whatever it takes is quite ineffectual after the b******s he has made of running the Exchequer for 10 years. He was deluded by his own rhetoric into thinking he had an answer for everything. Well, the bust he believed himself proof against has been his and our undoing. The French usually have a way of conducting their affairs more effectively than the UK and so it has been shown again.

Currencies The pound has succumbed against both the dollar and the Euro over the last several weeks. Caught between two stools, both stronger, sterling has been squeezed. Understandably investors will go for the safety of the larger currencies. [That may be no bad thing, since competitively we will be better placed to sell those manufactures we still produce]. With our banks looking weak compared with the US and Eurozone the UK plc is being shunned for the time being.

Commodities

A decline in demand for commodities, especially from China, has finally hit both commodity prices and the share prices of miners. Stories abound that China is trying to reduce prices of iron ore charged by Vale, Rio Tinto and all the majors who supply half way round the globe to fuel China’s boom. India (also a big supplier of ore) even stated that China was defaulting on contracts as demand fell sharply last month. The Baltic Dry index reflects this reduction in transport activity. Now at 3217 it fell 8.9% yesterday. Well, yesterday was rather exceptional and while oil climbed back towards $100 all other metals fell between 1% and 6%.

UK Stocks

More and more weak results are percolating through the mid-year reporting season. Analysts are also rapidly reassessing future growth. So many companies are on the watch list it still seems that cash is the safest bet. Where to put it safely is a poser.

New Highs last week were 9 which interestingly included Royal Bank of Canada, were substantially outnumbered by New Lows at 277(inc AIM 128). As I reported last month the uptick in the prices of stocks turned out to be a false dawn and the sectors which had turned positive rapidly went negative during September. There is one sector (Pharmaceuticals +0.17%) which has become positive in the period since Jan 1st. All the rest are negative, Industrial Metals minus 48%, General Retailers minus 38% and Forestry & Paper minus 37%. Even Mining the former darling is now minus 30% and Oil & Gas minus 17.5%.

Mobius investments

St Leger day has proved to be a useless ‘buy signal’. Mobius is sitting on it’s hands and wisely so. It must however be approaching time when we should start to invest. Any number of our previous prospects could be close to a low or past it. Personally having watched Persimmon’s gyrations over the last 12 months I feel that it has passed the worst. Barratt and Taylor Wimpey are both well off their lows as is Percy. They may not be selling houses but they have staunched the cash outflows. Much depends on banking covenants, land valuations etc but they seem to have strengthened over the last two months. JKX is also very low considering it’s good prospects for next year and it’s minimal or nil gearing.

Providing we research companies and pay particular attention to gearing, cash flow and sector etc we may be able to make some judicious purchasing in the next month or so.

I therefore remove my blanket stricture about sitting on ones hands. Personally I have recently invested in BG and Braemar Shipping Services. I am resigned to a certain volatility currently, but hope things will settle down over the next three months.

Martin Longman - Acknowledgements to Daily Telegraph and FT.