Newsletter September 2005

 

       I like to be fairly up to date with my news so have taken advantage of Mourad’s absence to delay drafting this month’s thoughts. Last month I started by saying what a storming week it had been. This month a different sort of storm is on my mind. How long can the market defy gravity? There is so much bad news around that I feel there must be a pull back soon. Will Katrina be the trigger? Or will the turn come when the price of oil starts trending downwards?  With supply of crude increasing and demand decreasing that may only be just around the corner. It is a rash man who puts on the hat of the prophet and today saw record prices at UK pumps, however activity here and in the States particularly must be affected by Katrina. All is not well in the financial world though and the price of gold took a move higher last week, probably reflecting unease amongst some. One can imagine though that a response to catastrophe would be ploughing money into gold or commodities deemed in short supply. I read an interesting article about a businessman who moved some £60k of his £330k pension fund into Gold Bullion Securities last year. Looking for security, that is a pretty large bet.

            Interest rates will play a big part in any recovery and what looked fairly straightforward last month i.e. rising rates in the US and lowering rates here are being called into question as the latest statistics tell conflicting stories. What is apparent is that house price rises have become negligible over twelve months (2.3% rise Aug 04 to Aug 05 from the RICS survey, dropping month on month) and Buy-to-Let is fading somewhat as some investors retire with burnt fingers. Rents are rising faster than house prices for the first time in 9 years and people who cannot afford to buy are having to pay. The only option available to them.

Many families will be uncomfortably squeezed while the upward movement in rents will encourage landlords who can afford to buy more property.  On the other hand they might not see the capital appreciation, going forward, that they have experienced over recent years.

            OIL. The historical margin on refined products is $4-$5 a barrel. This became nearer $10 since the Iraq war began and in recent weeks it has spiked to $30. Oil firms and particularly refining stocks have risen to unprecedented levels, they may even go higher in present circumstances but the time to worry will be when investors begin to believe that those margins will persist forever. (source:- Lex in FT)

            Other commodities are still near record highs but the miners are showing signs of faltering having had several sessions when they all fell back substantially. Notable casualties of the hurricane are coffee beans which go through New Orleans in vast amounts and are warehoused there and timber which also uses that port and the Mississippi. Immediate reactions to the bad news were a fall in the dollar and a further rise in many metals as well as coffee and timber. While the rest of the world can help out by supplying more oil and even petrol it seems like Uncle Sam will have to whistle for its gas needs which are not stored there in any quantity. They will doubtless work flat out to ensure sufficient supplies for this winter are sourced from the Gulf, Alaska, Mexico and Canada. Maybe Hamworthy can reap some of the benefit. Anybody for a further purchase?

            My sector watch shows the top 4 or 5 are the same as last month, as are the bottom handful. I will not therefore itemise them. Not so many shares achieved new highs (138) and roughly the same made new lows (30) as the corresponding week last month. Named favourites of ours are Ashtead, Hamworthy and NETeller which hit new highs. Both Ashtead and Hamworthy may stand to gain from Katrina, the former due to its hire centres in the Deep South of the USA and the latter for it’s tie up with LNG transport.

            Many club members have been hors de combat this month and with a break in meetings, activity has been reduced. However a proposal to purchase Patientline subsequent to the last meeting was agreed and an upward trend in the share price will also help to boost the portfolio, hopefully now close to the £1 UV. Recent significant changes (i.e. since the end of the last calendar month) to individual share values, particularly Hamworthy, Langbar (formerly Crown Corp), and Monterrico should be very beneficial. Character also powered ahead on news of the tie with Dr Who and the Beeb. Pity we did not go with the trickle of encouraging news. These  exciting changes in our portfolio valuation are welcome.  Just paper profits, you understand, chaps.

            I have picked up on my radar some interesting moves in minor shares that I  think could be significant. Redbus the  former internet hotel stock darling, seems to be recovering from it’s heavy losses. Last report was of much more manageable debt levels. The price last week ticked up from about 15/16p to 18/19p. Retail Decisions is also stronger and may have broken out from a recent flat trend.

            Look forward to seeing all club members at next weeks meeting

                                               

ML September 7^th   2005