or anyone's name :-)

So to continue the discussion:

Seventy2 - you posted these:

>i>The world might not be comming to an end just yet ! However things in the UK and US are far more bleaker than CR is painting.

"foreclosures across America have reached a three-decade high. For many Americans, the crisis is causing emotional as well as finacial strain"

http://www.voanews.com/english/2008-04-24-voa50.cfm

The BOE £50 billion swop has had little effect mortgage rates are still going up. The Halifax and Abbey both been raising rates lately and so have otheres...

http://www.guardian.co.uk/business/2008/apr/21/creditcrunch....

CR mentions Pendragon...well not all dealerships are doing well Leaders from Liverpool just entered administration. Furthermore car sales are down in Ireland...


http://www.liverpoolecho.co.uk/liverpool-news/local-news/200...

http://www.ireland.com/newspaper/breaking/2008/0425/breaking...

There is hardly a day goes by without more jobs gloom its rumoured Northern Rock will be axing 2,000 jobs within weeks. Yesterday 300 print workers lost their jobs...

http://news.bbc.co.uk/1/hi/england/somerset/7369195.stm

As for retail sales figures CR says the retailers would say things were bad however even the BOE are questioning the recent statistics "Economists highlighted a series of other gauges of consumer demand, all of which painted a much bleaker picture.

They included the Bank of England’s own surveys by its regional agents, which detected weakening consumer spending"

Conclusion... I expect things to get far worse in the short term and the UK is entering a period of uncertainty which could last a considerable period of time.

Isn't that still looking at the present and not the future? The market knows things aren't good. It's whether the market feels things will be worse in 6-9 months. I agree that if you read the current news things look bleak. But to the same token a year ago any investor that piled in based on all the bullish current news that was around lost a packet. I cannot remember the last time markets were pricing in a 2 yeal long property crash, a banking crisis and spiralling oil and food costs. That is a pretty depressed outlook that has been in the market for some time now (at least a year). Anyone that hasn't stepped out of the way of the train by now must be deaf and blind surely?

I suspect if the $ rises or stabilises so does oil. In a years time farmers are going to be growing as much food as they can, wherever they can - 'making hay while the sun shines' is the perfect phrase - prices fall. The housing market in the US bottoms - to be honest Europeans must be thinking it's ruddy cherap to buy a place there now - take a look and see how house prices have fallen v the Euro. Bank will also be oast the worst and assets rising. Most will waste to see the evidence but by then the market will already have been factoring it in for 6-9 months and bounced a long way imo.

By the way - the Dow Transport Index is out performing the Dow over the past 3-6 months:

http://uk.finance.yahoo.com/q/bc?s=%5EDJT&t=3m&l=on&z=m&q=l&c=%5EDJI

CR


CR

Hello CR,

I cannot remember the last time markets were pricing in a 2 yeal long property crash, a banking crisis and spiralling oil and food costs.

What makes you think the markets are doing anything of the kind?

10% or so off the top suggests to me that, far from pricing in armageddon, they are actually pricing in a fairly swift bounce in H2 2008! Certainly the markets are taking no notice of food cost rises [outside the softs markets]....and they're taking no notice of spiralling oil prices either [otherwise E&Ps would be going through the roof and fuel consuming stocks such as BA and the the Dow Transport Index would be falling, rather than out performing the Dow over the past 3-6 months as you've noted!].

Even the banks are, on the basis of two quarters of bloodletting, assumed to be over the worst....and the UK markets [except in the specific builders sector] at least aren't pricing in ANY sort of property crash as yet, because so far all we've had is a small trimming of prices.

As we sit here, having "got over" Q1, it is easy to think that the market doesn't look too bad. There are no near-term pressures of major note....Q2 results themselves are weeks away and plenty of people are inclined to bottom-fish......after all, thats exactly what they've done successfully on every setback in the last decade......

....but I'm far from convinced that they are right to do so. I'm certainly in the camp which say that the reason that the markets have held up pretty well is basically because the optimists don't want to accept that the gravy train is in the process of hitting the buffers. So far of course there has been little compelling evidence either way - but by the end of the year the direction of the markets should be getting somewhat clearer, IMO!

ee

Hmmm, perhaps.

"10% or so off the top suggests to me that, far from pricing in armageddon"

The FTSE 250 has actually fallen just under 25% in a year from high to low. Considering many of those companie have continued to grow earnings pretty substatially in that time actually increases that fall by some way in relation to earnings. The Dow has fallen 17% high to low, as has the S&P.

Even the banks are, on the basis of two quarters of bloodletting, assumed to be over the worst....and the UK markets [except in the specific builders sector] at least aren't pricing in ANY sort of property crash as yet, because so far all we've had is a small trimming of prices..

Many housebuilders and most commercial property co's are trading well below NAV. Yep, I reckon house builders have further to fall but they make up a small part of the market. Why that has to be a big negative for the market I don't know. If people being made redundant was the cause of the fall I would agree. As it is it's people that have made 200% in 10 year that are having to give a bit back. If the stock market falls 10-15% the world doesn't come to an end so why should it do so with housing?

As it takes some time for US interest rates to have an effect it could be argued they haven't even started to have the positive effect that they are likely to have in the coming months together with the tax credits from govenrment.

I'm certainly in the camp which say that the reason that the markets have held up pretty well is basically because the optimists don't want to accept that the gravy train is in the process of hitting the buffers.

I would agree with that if there wasn't so many bears about and consumer confidence wasn't at such a low.

One other thing, interest rates and inflation. Inflation is running @ 3%-3.5%ish in the US, depending what figs you use. Interest rates being cut from 5% to 2% say more than halves the interest a company pays. In the days of the late 80% we had interest rares at 12% or more and the gov used to cut in 0.5% or 1% every month or two. Even when they finished the rate (tho I can't remember off hand what it actually was) was around 6-7% from what I remember. Yep, we have Libor jacking the current rates up but these are still a walk in the park since the 80's. Another fall backl these days is the interest only mortgage. In the 70's and 80's these never existed. Today, if things are that tight house owners can opt to move from repayment to interest only and halve their repayments nearly, if things are tight.

So while you highlight a lot of fear factor in the market there are mitigating factors out there that the bears are ignoring too imo.

Did you know that over 10 years the FTSE 250 is up just over 6%p.a compound despite the lowest interest rates in living memory. Does that sound outrageous? If you had bought at the low in 98 the FTE250 is up 9% pa since then. That doesn't look like bubble valuations to me.

Yep, by the end of the year the direction will be cleaerer but by then you might have missed a whole year of gains if the direction is still up. 'The market has to climb a wall of worry'.

CR

CR,


Did you know that over 10 years the FTSE 250 is up just over 6%p.a compound despite the lowest interest rates in living memory. Does that sound outrageous? If you had bought at the low in 98 the FTE250 is up 9% pa since then. That doesn't look like bubble valuations to me.

All comparisons of this sort depend on one's timescale. I rather suspect that we may come, in the 2020s [appropriately enough ;-)], to regard the last 50 years as a bubble in the equity and property markets. I think there is a case to be made that this period of dramatic outperformance of such "real assets" is now coming to an end, as their role as an inflation hedge diminishes and as the baby-boomers draw down their savings in retirement. In that context, the sort of "tailing off" in returns that your figures imply seems to me to be quite natural.

I reckon house builders have further to fall but they make up a small part of the market. Why that has to be a big negative for the market I don't know. If people being made redundant was the cause of the fall I would agree

...the redundancies have barely started - but they'll be coming, IMO!

ee

One other thing, interest rates and inflation.

It amuses me when people keep telling us what an honour it is to be living in such a low interest rate and
low inflation environment.

If you're hocked up to your balls in debt, it doesn't really matter if rates moving from 3% to 6% are still at
historically low levels, you're still just doubled the interest you're paying on your debts.

Low interest rate environments are only a good thing if there hasn't been irresponsible lending from all corners.

There has.

Itsallaguess

Geeze that's a depressing post EE.

Try Carlsberg Special Brew, 9% - it's what I'm on :-)

CR

So far of course there has been little compelling evidence either way - but by the end of the year the direction of the markets should be getting somewhat clearer, IMO!

ee - you are dead right imo, it is what i think too. Towards the latter parts of this year things are going to get nasty and going into 2009 (Economic reality check). Perhaps after the US election is out the way. I still expect to see a decline very soon though, perhaps after the FED meeting this week, worse case for now imo is we go and test those March lows.....

Considering i reckon markets will be crap going into 2009 i want Soco to get a move on and SELL UP! I am very hopeful of a sale in the next few months...at that point i will either be looking to buy stakes in other E+P stocks or i'l stay in cash and wait for the market to correct.

It will be nice to get a sale when the equity markets are stable and high oil prices are maintained....but knowing our luck maybe oil prices reverse after such a good run when it comes to sell Soco....

Well I guess as I'm long it's natural for me to be optimistic as it is for those who are heavily in cash wanting to be pessimistic.

I actually sold up nearly everyting last July. I shorted the house builders massively then. I'm actually investing now on what I see not what I hope for. My port is only 45% invested but my pension is 90%+ invested and has been since mid March.

As for the Fed this week, I reckon they will only cut a quarter point or nothing at all, the market will see them as done and we get a big rally.

That's my guess short term. Longer term I don't know what's going to happen in 2009 but I am not ignoring a rising market between now and then.

CR

As for the Fed this week, I reckon they will only cut a quarter point or nothing at all, the market will see them as done and we get a big rally.

The market expects 25 basis points...the market may rally on that cut or it could be built in. But in the statement the fed may indicate they are "done with the cuts" for now. If we get a good rally on this news i will look to go short on the indicies, as i expect a decline to occur very near term.

If the fed indicates they are done it will mean the dollar strengthens and perhaps commodities come of a bit. The market has been kept up my commodities the past few months. Energy and Materials is the only two sectors that are up YTD. It is why i also think we will get a shift in cash from Commodities into other sectors that have been beaten down in recent months.

But towards the end of the year as problems reappear or as people realise things are not as rosy as one thought, the next decline may begin.

It is why i think the upcoming correction will offer an excellent opportunity to get into Commodity related plays and for adding to positions. This would proove to be a correction in a longer term secular bull market in commodities, i like buying the long term trend and just holding and adding on weakness.

Hi,

Very interesting to read CockneyRebel's thoughts, and hats off to the guy who's actually thought about things & posted something which dares to differ from the universally accepted ultra-bearish view that has taken over this Board to such an extent that I had stopped reading most general economic threads altogether, as I found them just slavishly repeating the doom & gloom on the television news.

Anyway, after that provocative start, here are my thoughts;

Clearly we're going into an economic slowdown, that's obvious, but I don't think it will necessarily be that deep or prolonged. And as an investor, my only issue is how cheap or expensive shares are, whether the bad news has been partially, fully, or excessively priced-in.

Large caps

On balance I reckon some larger caps are looking expensive, but many small caps are now looking ridiculously cheap. So my focus in the next few months will be to open a selection of short positions on large caps that I think are still too expensive (especially ones which have quite a bit of gearing, a highish PER, and haven't been marked down much or at all yet). Ran a stock screen this weekend, and reckon Capita Group, Serco Group, Aggreko, and Homeserve all look a bit toppy, but need to do some more work on that.

Small caps

And as regards small caps, I'm looking to pick up bargains - i.e. basically good companies that have seen their share prices collapse in the last year, but which have a good business, as good businesses do well in boom times and Recessions.
But my selection criteria for small caps include the assumption that the company might well warn on profits, so take say 30% off the broker forecast profit, and if it still looks cheap after allowing for that (say PER below 10) then it might be worth picking up a few.

Growth companies also offer (selectively) spectacular value right now too. If you find a company such as IndigoVision which is delivering big-time on its plans, the clear leader in its field globally (look for very high gross margins & rapid organic sales growth), but where the stock market is not factoring in any premium for the growth (IND is probably only on 17 times this years earnings, and 10 times next years), then in a couple of years' time purchases made now (when Mr Market is depressed) could end up looking inspired. But good stock-picking more important than ever, as bad companies can do well in a boom, but only good companies do well in a downturn.


Inflation

Everybody seems to think that inflation is roaring out of control, but it's not really.
Sure the oil price & commodity prices are getting a real concern now, but with more subdued consumer spending, it's very difficult to see how retailers are going to pass on price rises to consumers.
When consumer demand is soft, the only way retailers can shift excess stocks & compete for market share, is on price. Simple as that, so expect retailers to report weaker margins & that will IMO absorb a lot of the inflationary pressures.

So this is probably a terrible time to be investing in retailers shares, and indeed I've given that whole sector a bargepole wide-berth for more than 2 years now, despite it being the sector I know most about.

And what about all the Poles coming to Britain, to do the rubbish jobs that the British kids don't want to do, for low wages ?
Well this is having a very positive impact on the UK economy, no doubt about it. Southampton (where I live) is chock-full of Poles, and whilst the local chavs may moan about them taking the jobs, most people are very happy with people who come to the UK wanting to & prepared to work hard. Indeed, talking to some recruitment agents in a pub the other night, they told me that local employers are specifically requesting Poles for light industrial vacancies. They're more reliable & harder-working than English worked, on average.

It's anybody's guess how much the Poles are knocking off UK inflation, but I heard an estimate of about 0.5%p.a. which sounds credible to me. And what a brilliant situation to have really - an economy that can draw in cheap labour when it's needed & that will go home when it's not needed. Sounds ideal to me. But again this is a new factor which should help keep down inflation, as inflationary pressures usually build up in the labour market first when there is a shortage of supply of suitable labour. I don't think that's going to happen this time round.


Food price inflation

Again, we get endless reports of how food prices are rising enormously, but for the UK consumer this only tells part of the picture.

My pal who is one of the finance guys for a big-4 supermarket, told me some interesting snippets last time we had a drink.
He's saying that it's absolutely true that some staple foodstuffs have risen a lot in price. But the average spend per customer has barely changed year-on-year.

And this is blindingly obvious when you stop & think about it. Most households in the UK work on a budget, where they have roughly the same amount to spend on food each week at the supermarket. So shoppers do what they've always done from year dot, i.e. they product substitute to get the best bargains.

So if pork is on special offer, they buy pork instead of beef. Or if a food they particularly like becomes too expensive, they switch to a cheaper brand.

Another very interesting point is that the supermarkets are doing more & more promotional activity on multi-buys, this is one of the main ways supermarkets compete to get your business, by splashing eye-catching offers all round the store, e.g. BOGOFs ("buy one get one free"), or discounts for multiple purchases.

The supermarkets mark the prices up first (and/or get supplier subsidies in exchange for increased volume), and then offer the discount. However, the official inflation figures that the Government use do NOT take into account this type of promotional activity, so I am told. They just take the stated price for one item, instead of the discounted price for several items which most shoppers take advantage of in quite a big way. It's not unusual to see 2-5% off the total shopping bill shown on the till receipt for multi-buys, but the official inflation data ignores that, and hence overstates food price inflation.

Also, the mix of foods in the official inflation shopping basket no longer reflects what people actually buy, and is heavily skewed towards staple foods, which have risen in price the most, again over-estimating food price inflation.


House prices

No doubt that house prices have already sharply corrected, and good thing too, they were ridiculously high & a dangerous boom had occurred, as we all knew.

But if the price is right, a house will sell. We had this recently with a family house that's been on the market for over a year. We chopped the price down about 6%, and had an offer for the full asking price within 2 days.

Mortgage lenders are lending, but they're doing so responsibly again. A good thing, but it's likely to see 20-30% off house prices (I reckon we've already had about half of that where I live, for houses that are actually selling. Everything else is just stagnating on the market because the price is too high).

Buy-to-let - looks pretty much broken, for the new build flats in City centres, but again that was pretty obvious & it's the unsophisticated investors who bought these flats without thinking properly about rental yield, market dynamics, etc, who are getting burned.

How much all this rubs off onto the real economy, who knows ? It's bound to have some affect, but my view is that we're looking at a couple of fairly lean years, rather than a long & deep Recession.

So how much should that affect share prices ? Good companies on single-digit PER's (other than retailers or housebuilders) are probably great value, selectively.


Interest rates

I agree completely with CockneyRebel that interest rates are actually at very low historic levels, and that's just not the required backdrop for going into a Recession.

Recessions happen when inflation gets out of control (say 10%+), and the central bank is forced to jack up interest rates to say 12% to rein in inflation. Then you get a nasty Recession. That's just not happening now.

The main issue that needs to be resolved (and will be in time) is for the credit crunch to gradually unwind & LIBOR to come back into line with base rates. No idea when or how that will happen, but sooner or later it will happen.
In the meantime we've got some dislocation in the economy, but providing the credit crunch doesn't lurch back into crisis territory then my money is on this issue gradually sorting itself out.


Credit crunch

The sub-prime mortgages issue in the USA does seem an extraordinary issue. That so much money could be lent to so many people who obviously could not afford to repay it, is just mind-boggling.

I don't believe we've had anything like such a bad sub-prime mortgage issue in the UK. Although there are probably quite a few fraudulent mortgages out there, it's common knowledge that some mortgage brokers will happily falsify figures on the applications in order to earn commission. And the self-certification stuff, 125% mortgages, etc, no doubt contain more than enough bad debts waiting to emerge.
But then the lender repossesses the property, and maybe takes a 10-20% haircut on the amount borrowed on the mortgage, hardly the end of the world. Remember that many self-certifified mortgages were done with 30-40%+ in equity, so the lender is unlikely to lose anything if they repossess & sell at auction.

Probably one area where we may yet see trouble in the UK is in the leveraged buyout area. A lot of the private equity deals done to buyout retailers in the last five years are probably already looking shaky. I wonder who will be the first big retailer to end up in trouble with breached covenants & possible insolvency ? But again that's mainly a banking sector issue, as the underlying retailer business will continue trading under new ownership, minus a few loss-making branches.


Overall

Yes we're going into an economic slowdown, no doubt about that.
But small caps shares are (selectively) dirt cheap & more than factor in the likely bad news, IMO. This is a great time for long-term stock-pickers right now, with good companies around at dirt-cheap prices.

We've had a year of plummeting prices, panic selling (now finished), and many small caps clearly bottoming out. But what about the risk of further falls, on a profits warning ? That's the main thing that concerns me, so in order to buy a small cap I'm looking for 3 things;

1) Very low rating - so that the PER already factors in more bad news. So I'm protected to a certain extent if there is a profits warning, as it's already in the price. And if there isn't a profits warning, then I'm getting a bargain.

2) Recent trading update - it's worth placing emphasis on having a recent trading update, as that reduces somewhat the risk of a profits warning, especially if the trading update is positive.

3) Director buying in reasonable size - probably more important than ever. This is a great indicator of the real confidence Directors have in the business.


Happy stock picking !

Cheers, Paul.

Hi Paul :-)

Good post!

Clearly we're going into an economic slowdown, that's obvious, but I don't think it will necessarily be that deep or prolonged. And as an investor, my only issue is how cheap or expensive shares are, whether the bad news has been partially, fully, or excessively priced-in.

To my mind this is the simple difference between those who are prepared to be buyers currently and those who are not. Personally, I am personally unpersuaded that the slowdown will be shallow and swift - indeed I fear that the continued unwinding of leverage will dampen the economy for years to come! There are some clues as to why in your own post:

a) Sure the oil price & commodity prices are getting a real concern now, but with more subdued consumer spending, it's very difficult to see how retailers are going to pass on price rises to consumers. When consumer demand is soft, the only way retailers can shift excess stocks & compete for market share, is on price. Simple as that, so expect retailers to report weaker margins & that will IMO absorb a lot of the inflationary pressures. So this is probably a terrible time to be investing in retailers shares

Why are you not expecting this weakness in consumer spending to spill over into other sectors of the ecomomy? Who produces goods and services that are NOT ultimately bought by consumers? Will they remain immune if, for example, government tax revenues are also squeezed and spending cuts are forced?

b) ...talking to some recruitment agents in a pub the other night, they told me that local employers are specifically requesting Poles for light industrial vacancies. They're more reliable & harder-working than English worked, on average.
It's anybody's guess how much the Poles are knocking off UK inflation, but I heard an estimate of about 0.5%p.a. which sounds credible to me. And what a brilliant situation to have really - an economy that can draw in cheap labour when it's needed & that will go home when it's not needed

How much of the money that the Poles and others earn actually remains recirculating in the UK? Yes I agree 100% that the Poles, in particular, are hard working and keep labour input costs down, but I'd suspect that their own spending patterns don't do very much to support UK PLC's revenues, given the repatriation of earnings, savings that will ultimately be redeployed in Poland and their probable support for other Polish small businesses.

c) My pal who is one of the finance guys for a big-4 supermarket, told me some interesting snippets last time we had a drink.
He's saying that it's absolutely true that some staple foodstuffs have risen a lot in price. But the average spend per customer has barely changed year-on-year.

So a greater slice of the retail pie is going to producers of staples - and those who produce luxury goods or discretionary spending items are going to be squeezed [reinforcing point a) above]

d) No doubt that house prices have already sharply corrected, and good thing too, they were ridiculously high & a dangerous boom had occurred, as we all knew.
But if the price is right, a house will sell......Mortgage lenders are lending, but they're doing so responsibly again. A good thing, but it's likely to see 20-30% off house prices

Yes - I agree with all of that. There is little doubt that properly-priced houses will sell - though I'd guess that it is more difficult to keep chains intact in an environment of price pressure. What will happen to spending if [most] people feel 20-30% poorer as a result of the house price fall [assuming for simplicity - as I'm not sure where to look it up - that the value of mortgages is balanced by non-housing assets in private hands]? It was frequently argued in recent years that there was a strong "wealth effect" from property price rises - what happens if it goes sharply into reverse?

e) I agree completely with CockneyRebel that interest rates are actually at very low historic levels, and that's just not the required backdrop for going into a Recession.
Recessions happen when inflation gets out of control (say 10%+), and the central bank is forced to jack up interest rates to say 12% to rein in inflation. Then you get a nasty Recession.

Again, in terms of recent history, this is correct. However, I'm not aware of any reason or theory in economics that makes high interest rates a necessary precondition for a recession! The fact that they have recently been associated is spurious, IMO. Indeed if you look back to before 1960 I suspect you'll find very little evidence of high interest rates inducing recessions - and yet recessions happened regularly..... and, indeed, depressions happened occasionally and were more associated with low interest rates, and falling asset prices and falling demand! I'd be more concerned about the risk of a multi-year depression [a continued grind lower in the form endured by Japan from 1990-2005 ish] than about a mere recession!

f) The sub-prime mortgages issue in the USA does seem an extraordinary issue. That so much money could be lent to so many people who obviously could not afford to repay it, is just mind-boggling. I don't believe we've had anything like such a bad sub-prime mortgage issue in the UK. Although there are probably quite a few fraudulent mortgages out there, it's common knowledge that some mortgage brokers will happily falsify figures on the applications in order to earn commission. And the self-certification stuff, 125% mortgages, etc, no doubt contain more than enough bad debts waiting to emerge.
But then the lender repossesses the property, and maybe takes a 10-20% haircut on the amount borrowed on the mortgage, hardly the end of the world. Remember that many self-certifified mortgages were done with 30-40%+ in equity, so the lender is unlikely to lose anything if they repossess & sell at auction.

Yes I agree that the UK sub-prime issue is not likely to be as bad as the US. OTOH I think that the BTL and self-certification problems have a chance of being VERY much worse! We've had a herd instinct in the UK.....virtually everyone (I'd suggest) knows someone who has done buy-to-let.....and not all of these folk were rich enough to ride any losses. I've known people in modest bungalows in the UK, buying property abroad on big mortgages in the expectation that they can rent it out until they retire.....huge swathes of the property markets internationally have become like a game of pass the parcel - and the music has just stopped! So, whilst I concur that THE LENDERS may well have protected themselves from unmanagable excesses in property lending [though I've no doubt at all that they've be making big provisions and taking fresh losses for several year syet] the real damage will be done to the naive "investors" who borrowed the money.....and in many cases they'll be wiped out and be filing for bankruptcy.....and then falling back on the state etc!

g) Probably one area where we may yet see trouble in the UK is in the leveraged buyout area. A lot of the private equity deals done to buyout retailers in the last five years are probably already looking shaky. I wonder who will be the first big retailer to end up in trouble with breached covenants & possible insolvency ? But again that's mainly a banking sector issue, as the underlying retailer business will continue trading under new ownership, minus a few loss-making branches.

I agree with the comments here too. Banks should generally be only modestly exposed and most businesses will continue trading in some form, even if owned by the banks. The real losers, though, will be the private equity holders - and that includes many major pension funds, as well as the rich individuals who are frequently fingered on such matters. This will have a subtle impact on markets - but it is rather difficult to forecast exactly how the after-effects will play out [because there will be flows in both/all directions, partly because a depressed market will throw up opportunities]. Nice to see you drawing the comparison between the "old" LBO and the "new" private equity.......same old same old, as some commentators have belatedly taken to noting! ;-)

So...the above are reasons why I can see the drag on the economy continuing. But, for those who are inclined to look at the glass as half-full, rather than my half-empty, you make some very fair closing comments on stock selection. The only point I'd take issue with is this one:

This is a great time for long-term stock-pickers right now, with good companies around at dirt-cheap prices. We've had a year of plummeting prices, panic selling (now finished), and many small caps clearly bottoming out

I really don't think that the worst is yet over. Yes I'd certainly agree that it looks as if it is - and indeed a persuasive argument can be made for it being so [as you and CR have done] - but IMO this remains a market for traders, rather than long-term investors.....

....and when it comes to buying smallcaps, I don't think we can conclude that the "battle is won" when we have only read the reports of gunfire and not actually heard any! And we are a long way from seeing the whites of any frightened eyes! IMO there will be a better time for bargain hunting - and that will be when the body count of insolvencies has started to rise significantly. Perhaps in a year or two?

All the best

emptyend

I really don't think that the worst is yet over. Yes I'd certainly agree that it looks as if it is - and indeed a persuasive argument can be made for it being so [as you and CR have done] - but IMO this remains a market for traders, rather than long-term investors.....

ps....damn! I forgot the additional point I was going to make.....

....in the circumstances of a) credit crunch and b) inflation of basic commodities/food staples I think we are going to see the heavy hand of regulation trying to "correct" the problems!

With the benefit of hindsight, I think the banking regulators will conclude that the Basle II mark-to-model regime was too lax [there was an interesting leader in the current edition of The Economist on this topic http://www.economist.com/opinion/displaystory.cfm?story_id=11089594 ] and there is some risk of them over-regulating at the wrong point in the cycle, IMO.

Meanwhile the supermarkets are facing yet another OFT enquiry into price-fixing:
http://news.bbc.co.uk/1/hi/business/7369838.stm

These issues are going to weigh down on lending activity and corporate profitability, IMO.

ee

My view is that the impact on spending of real people in the UK has hardly started – just the other day my sister spoke as if the only problem for the UK housing market was the funding problems of banks, which were about to be fixed by the Chancellor. Since companies will (a) only spot falling spending some time after it develops, and (b) will talk as bullishly as they can to keep their SPs up, it's not surprising that company comment can still be optimistic – IMO that will change and the tone of directorspeak will darken. The outlook for banks has always been an early indicator of the outlook for economies. I think the problems of the UK economy have hardly started, and 2009 will be worse than 2008.

I accept that an investing strategy of buying shares on very low single figure PEs, and half-expecting them to fall short of profits by ~30% probably won't lose much money, but I don't think that style of investing will actually make money. There has to be a positive catalyst to get investors looking to buy, and that approach doesn't include one so I'd reckon those shares will just stagnate. But why not get on the front foot, look where product prices are rising, and get stuck in there? You've probably guessed where this is heading: oil, gold and agricultural commodities. I've never claimed to be much good at forecasting where commodity prices will be many months away, but I've always insisted on having holdings I can sell quickly if commodity prices start heading down. Based upon current spot commodity prices, companies in these sectors still look cheap, and I'd much rather be investing in companies heading forwards with the wind in their sails than the walking wounded for which you half-expect a profits shortfall of ~30% v forecasts. Why not commodity producers: is it just because you're intimidated about analysing them, or that you've got a mental block because you've wrongly thought they were toppy before?

I agree with the bulk of what ee has written. The time will certainly come when conditions look like 2003 again, and when it looks like it has, bombed out industrials will be the play to make, but IMO it's much too early for that yet. Capitulation is a necessary part of the economic and stock market cycle, and just the fact that respected people are trying to bottom-fish means we ain't there yet. Remember how 1992 and 2002 felt? Don't buy most shares until we've felt like that again.

Hi PP.

I agree totally about small caps being undervalued. I also think they have bottomed. Look at the Aim All Share Index (AXX). Since last June the chart has fallen like a ball down the stairs, bouncing down them, each bounce getting smaller and smaller, just as in 2001-03. I think this indicates the reduced fear after each fall until we get to base where so much fear is priced in people are either not selling or are buying in the majority.

I would differ on retail stocks tho. I think they are currently hated - the fact you've avoided them for two years illustrates that in part imo. Selectively there are buys out there in my opinion. Buy things that are hated imo, sell to those when they are in love.

Tho not strictly retail, Walker Greenbank manufacture high quality wallpapers, the sort Lord Irvine pasted all over his gov house and caused a huge stir at £150 a roll. WGB have murdered their debt down. They have recently posted fantastic results, the PE is around 6. Last week someone was determined to sell 400K and dumped them at 2p below the market. I called the FD and asked what was going on and if he knew. 'You tell me' he said. 'We are dumbfounded. After the results I had a bet with the CEO where the shareprice would go - looks like I lost that' he said. 'We continue to stand by our statement that we are trading strong in the past two months since year end'. He said they can't issue a trading statement every week to reassure the market. When you get people determined to sell in small caps it blasts the price. I bought a load more and the directors followed suit. I've not see stocks get this oversold since March 03. These are luxury end too - there's an argument that people that buy luxury end (as shown by Burberry) are less affected in a recession (but we don't have a recession and won't so that anecdote was pointless :-)).

I also think 'Don't Move, Improve' will come into play in the housing market. Kitchen Co's are having a great time. Galiform, Omega International and Smallbone posting great results recently. I've been buying Smallbone. The fwd PE for 09 is just 9. They are expaning into the US, have just won a large Manhatten contract and are very upbeat. 40% growth year on year forecast. Toscafield has been buying 26%. He is Martin Hughes - he bought Hornby and more recently Gaming VC right at the bottom of the market - he 8 bagged Hornby and has just made 200% in Gaming VC in 6 months - in this market - a shrewder investor you will not find imo - former Hedge Fund Manager. I don't believe he would have bought these without the shrewdest of due diligence.

I'd look at XPP if I was pointing anyone to an undervalued stock. Directors buying shedload, upbeat, moved production to the far east, designing their own power supply products and manufacturing now - will increase margins and sales imo. This can be seen if you compare H2 sales to H1 in the year gone, tho the market has missed that the margins are rising strongly. Margins this year will be way higher, the PE for this year is just 7 and the yield is over 9%.

I'm holding loads of hideously low PE's like ETQ where the directors and mates are buying loads. I reckon the PE may be 3 or less, TND PE 4 or less and directors buying there too.

AXD is another. It has a great track record of growing profits - directors have been buying PE 6.5 and an 8% yield. It's only this cheap (imo) because a major shareholder died and his estate has been selling 3m shares. They look to have cleared now or nearly cleared.

PE 's like this and yields like this just don't come around more than once every 5-10 years if then. The in themselves demonstrate an oversold market imo. The market is thoroughly depressed and scared - that's the time to be buying imo, no matter how wrong it might feel sentiment wise. If you can take the emotion out of a purchase and just consider how cheap some of these things are then there are some craking investments out there. A year ago it was far more dangerous to be investing as shares were on PE's of 12-15 all over the small cap arena or higher, and everyone was bullish and buying felt right - how wrong that was to do. I was struggling to see value then despite all the hype on the BB's and in the press and on those ratio's the risk was actually greater than now.

Pendragon - I'll have a little bet that by year end the stock has doubled from here. In the statement they say this years results will be at the upper end of expectations - how you can say that with just 4 months gone without being very confident beats me - but they must be confident. Somehow tho, in this market the average investor doesn't hear that - they hear what the press and the media feed them in the daily brainwashing sessions imo.

Overall company prospects change very little over the course of several years trading, in the main. All that really changes mostly is investor sentiment imo.


CR

SirLurkalot - do you not think everybody feels like that tho? That's the point. For a year now everyone has been forecasting doom and gloom. The FTSE 250 has fallen 25%. AIM is below where it was in 1996! There might be some special factors in that, the dross that has listed on there of late but many of these AIM stocks are cracking little companies.

Rights Issue PLc, or the banks as they used to be known have or are rebuildin theier balance sheets, they've kitchen sinked a lot of these debt as far as write downs go. The market was factoring in a domino crash of the banking system the weekend Bear Sterns fell over. There isn't going to be a colapse of the banking system it seems. M&A is starting to build again. I heard that was over for the next 5 years.

As far as banking goes - we are back to normal - the past few years have been abnormal. It means banks will have margins on the business they do once again instead of offering free credit for 6 months if you swap credit cards just to attract cashflow. As banks rise and oils continue to perform I reckon the FTSE100 will make a new high. The BBC will then be trying to explain that in their dumbing down process that investors are looking to the future after just telling us we are in for a return to soup queues and sleeping on the streets a la thirties(tho that will do a few bankers good imo).

CR

"SirLurkalot - do you not think everybody feels like that tho?"

No, you, Paulypilot and Carmensfella, of those writing on this board, don't. When the last bull has given up, that's the time to be buying. As for now, there are people still buying each rally, and the economy has hardly started to suffer. It's not different this time, it'll just follow the pattern of previous downcycles.

Why not choose healthy companies heading forwards on low valuations rather than disliked ones from which you half expect a 30% profits shortfall?

This time is different - always expensive words. Well usually, anyway.

5,6,7,8+ % yields. Obvious buys.
Single digit PE's, likewise...

Here's why it might be different

Stats from the blue book etc...

£bn current prices			1999	2006	Change
			
Individual Net worth			4603	6899	2296
Non Financial Assets			2137	4468	2331
			
Gross Disposable income			643	866	223

Other measures of income:

Wages					432	605	173
Income taxes				130	193	63
Net wages				302	412	110
			
Consumption Expenditure			693	1006	313

50% of the rise in Consumer expenditure growth has been funded by people feeling richer, rather than earning more.

That has been the result of their houses rising in value by £xxx pcm. And the belief that it will/would continue. Once that belief is shaken the reality of the situation may cause a far worse outcome than analysts expect.

And if you don't buy that, try this:

http://www.advfn.com/p.php?pid=chartscreenshotshow&u=e08ie%2FULRzgWPLA4Vs5l9yrWYudp1fEf

But of course, no disagreement, no market...

HT

PS It takes so long to format a table, I don't think I'll be bothering with that again!

Sirlurkalot - possibly we were all bears the weekend Bear Stern got taken over, I know I was around that time.

It's usually the case that market's bottom on big events, much like that Bear Stern event. The market plummeted to a low that day that we haven't revisited.

When have you ever known a market where there wasn't bulls or buyers? You'll never see every bull roll over - I'd bet that the reaction here is far more bearish than bullish from the bulk of the replies. Hard to tell tho - it's quite easy to be bearish when you've dashed to cash same as it's natural to be bullsh when your long stocks, we all tend to look for data that backs up our gut feel.

CR

I sometimes think that some posters here have never seen a proper recession and have no idea how it feeds off itself to drag the economy down and the share prices of most companies, good or bad, with it.

We had a long boom and now it looks like that has finished. The bust won't be nice and the time to buy is when just about everybody, as SirL said, has gievn up.

We aren't anywhere near there yet and apart from oil and gas and maybe a few commodities I won't be buying much at all.

Banks and housebuilders and the other cyclicals will have to be at lower prices and have a lot more bad news well behind them before I am tempted.

repobear

t's quite easy to be bearish when you've dashed to cash same as it's natural to be bullsh when your long stocks, we all tend to look for data that backs up our gut feel.


v good point - behavioural finance and all that - as market participants are mostly long or seeking to be long, so the market behaves as an eternally bullish animal, with panic and sharp down-move capitulations coming in cycles. Thats why I try and run at least 30% in shorts to keep me more balanced on stocks and relative performance - it also forces me to take profits from the short side, which helps with the mindset in taking profits on the long side, which is always very very hard to do. As of now I am 1:1 notional long and short.

As for this thread, and where it started. I'm with EE on this - I think the real economy has only just started to slow.

In equities retailers have utterly cratered, banks are down 30-50%, oils and miners are up and defensives and pharma are largely flat. The changing mix is why broader indexes don't look like they've suffered. Unless you've successfully ridden the macro cycle rotation out of financials, property and consumer goods, and into oils and miners (over the last 5 years) then your portfolio will have suffered more than the broad indexes. Sure within that there will be gems of stock-picking, but for the most part PI's find it hard to beat the index on a stock-by-stock basis.

Going forward, I am bearish on a macro level - I don't expect to see broad indexes rallying much, and I still see value traps in financials, homebuilders and consumer goods, and I see no overwhelming reason for the cycle to start favouring financials and/or property and/or retailers yet. However, being bearish doesn't mean I forecast the end of the world. I don't expect to see 50% declines etc. I just expect to see, well, not much, overlaid with a greater propensity to decline than to rally.

Actually I'd much rather have a conversation couched in relative sectoral performance terms, and stock-pick within that, rather than a bearish/bullish punch and judy show. I just have no interest in a "he's bullish therefore wrong" thread.

Hello CR,

It's usually the case that market's bottom on big events, much like that Bear Stern event. The market plummeted to a low that day that we haven't revisited.

When have you ever known a market where there wasn't bulls or buyers? You'll never see every bull roll over - I'd bet that the reaction here is far more bearish than bullish from the bulk of the replies. Hard to tell tho - it's quite easy to be bearish when you've dashed to cash same as it's natural to be bullsh when your long stocks, we all tend to look for data that backs up our gut feel.

One of the interesting things about the present situation is that those who are closest to the City are speaking with almost one voice in counselling continued caution, whereas those who are more inclined to be bullish at this point are, I think, a little more remote.

I can do no better than to refer you to your own personal quote in your profile:

If you can keep your head while all around are losing their's - you probably haven't grasped the gravity of the situation :-)

;-)

I certainly don't think we will have a bear market without some regular strong rallies - and I'd suggest that, in the context of quarterly reporting timelines, now is as good a time for a rally as any! However - I don't think it will/can persist if the economy continues to exhibit signs of stress. IMO there is a good deal of price sensitivity out there in the broader economy - and people are increasingly husbanding their cash.....this will take time to show up in the stats - but when it does you won't want to be long of small illiquid stocks, IMO, even if they have stonking historical figures.

ee

"You'll never see every bull roll over"
Yes you will, I've known markets far more bearish than this - this mood is still pretty balanced, as evidenced by your attitude. I remember in 1992 thinking that there was no point investing in anything, everything was bound to fall. Have you any experience of previous bear markets yourself?

"it's quite easy to be bearish when you've dashed to cash"
I haven't dashed to cash, I'm fully invested, mainly in commodity producers. I'm not arguing the world is about to end: I'm arguing that there are more attractive places to invest than out-of-favour cyclicals.

Indeed, talking to some recruitment agents in a pub the other night, they told me that local employers are specifically requesting Poles for light industrial vacancies. They're more reliable & harder-working than English worked, on average.

"No Blacks, No Irish, No English".

It can't be long can it?

Indeed, talking to some recruitment agents in a pub the other night, they told me that local employers are specifically requesting Poles for light industrial vacancies. They're more reliable & harder-working than English worked, on average.

eh - recent evidence is that the E European migration to Britain is beginning to reverse. With GBPEUR moving from 0.68 to 0.8, they can earn more at home, with greater demand for their services, than in UK.

One of the interesting things about the present situation is that those who are closest to the City are speaking with almost one voice in counselling continued caution, whereas those who are more inclined to be bullish at this point are, I think, a little more remote.

Are they the same people close to the city who were speaking with one voice and telling us that NASDAQ 10,000 was a shoe in about 8 years ago ? Were the remote voices not correct back then ?

FWIW i've been in the buyers camp for about a month now. Not PPs and CRs camp though. What was most interesting to me was some of the companies that SirL has alluded too got discounted along with the rest of the market. It looks like the best of both worlds. Copper and tin are at all time highs, gold is up above $900, oil at $115 and yet some of the companies pulling this stuff out of the ground have been hammered by the same forced selling and deleveraging mentioned above. The difference is there is little chance of a profit warning coming out of the resources sector anytime soon.

The only other sector I have an interest in is the Dry Bulk Shippers. I know CR is a fan of these too. It's been much discussed here in the past but GOC and GLBS are on low single digit FORWARD PEs and the fabled BDI (although of little relevence to both companies it's been used as a stick to beat them with) is approaching all time highs. Fears of a US reccesion are often used as another stick to beat them but the US accounts for less than 1% of the dry bulk market.

I can see plenty of oportunities at the moment but similar to SirL I'm happier to ride tigers than try to be cleverly contrarian.

AXD is another. It has a great track record of growing profits - directors have been buying PE 6.5 and an 8% yield. It's only this cheap (imo) because a major shareholder died and his estate has been selling 3m shares. They look to have cleared now or nearly cleared.

Its a good thing you allow for a 30% fall in earnings CR ; (

Uncanny timing or what!

http://www.investegate.co.uk/Article.aspx?id=200804281211112440T

Alexandra, when finalising its results for the year ended 31 January 2008,
discovered stock had been incorrectly valued during the year. As a result of
this accounting discrepancy, profit for the year will be approximately 25% lower
than expected. This had no impact on cash.

CR you are one of the best stock pickers i've seen on the BB's - Good Luck with your strategy and please keep posting your ideas.

One of the interesting things about the present situation is that those who are closest to the City are speaking with almost one voice in counselling continued caution, whereas those who are more inclined to be bullish at this point are, I think, a little more remote.

I thought that was an interesting observation and perhaps points to the difference between the present circumstances, and recession if there is to be one, and past recessions.

In the past recessions have tended to be induced by government monetary policy and by fiscal policy. It was usually a co-ordinated attempt by the government to slow things down because they had overheated the economic system with previous inept policy decisions.

These periods almost inevitably led from one over correction to another and the so called boom/bust cycle.

This time it is different though, IMV.

We have a market induced monetary slowdown (the credit crunch) and an expansive government policy to try and counteract it. This is more pronounced in the US but will come here when our lot catch up with the curve.

The present period has been a phoney recession with much talk but very little evidence. Growth is going along at about 1.5%, retail sales seem to be holding up and unemployment is falling.

It is therefore unsurprising that generally people don't believe there is a significant problem. It is also not surprising that the biggest squeals are coming from the City because that is the epicentre of the problem. People are getting laid off and no doubt job security and confidence are very low.

However like all monetary changes it will take 12-18 months to have a full effect throughout the economy. The mechanism by which it affects the economy is complex. In a recession you get wave after wave of negative and knock on effects from increasing unemployment to lower spending leading to further unemployment and so on.

This process was generally eased when the authorities thought that that the inflation was eliminated and eased interest rates.

This time the government are trying to attack the cause of the monetary restriction with direct measures such as the $50bn swaps. At the same time monetary policy is being, and will continue in the UK, to be eased.

The downturn, or recession if it occurrs, will be the result of the lags between the credit crunch and monetary policy. As a result of swift action by the Fed I don't think that there will be a particularly sharp recession in the US and expect the economy to turn up later this year.

The UK may be a little sharper because the MPC have been slower to cut interest rates. IMV they appear overly worried by cost-push inflation something that was last spotted on these shores when the last Cleethorpes virgin was still alive.

I thought the announcement by Persimmon that they are stopping new site development was very significant and the first real economy effect of the credit crunch. I hope the MPC will take it as a warning sign.

I think it would be foolish to underestimate the power of monetary policy but equally foolish to overestimate its speed. Timing is everything.

apat15.

Yes, classic timing that or what :-)

The warning is down to poor accounting tho, not the current climate and as they say current trading is encouraging and cashflow unaffected they might even be a bigger bargain with that 120% yield. But perhaps wait and see.

I actually have a brother-in-law whois a bond analyst in the city. The whole city is depressed because they ar eso intent on examining their own dangly bits. I had luch with the COO of EDF Energy at the Emirate Stadium Diamond Club recently (I had no need to give all that detail but as it's probably the only time I'll ever dine in the Diamon Club I'm milking it for all it's worth :-)). He said to me they go into their financiers and lawyers and they are all depressed, they ain't doing the deals, their bonuses are being cut, jobs are going - they are depressed and thingk it's the end of the show. He on the otherhand goes out to construction co's, meets with trading partners and everyone is very busy. What you hear from the city isn't what's going on in the real world. Yes things are slowing - but as we get through this the comparisons start to get easier for inflation and growth comparisons. The thing is we are pricing in a recession and getting a slowdown. This has been the most expected recession ever - we usually price in a slowdown and get a recession.

By the way folks - I lived through the 70's recession as a teenagerand the late 80's recession. I started my own business in 89, in the middle of a recession and it was the best thing I did.

If any bears do come out of hibernation tell me what you think to ASC trading statement today - 80%+ sales growth, 80% earnings growth. Hardly a disaster ay? Clothing and internet - two ghastly things that investors hate - no money in thoose is there? :-)

CR

If any bears do come out of hibernation tell me what you think to ASC trading statement today - 80%+ sales growth, 80% earnings growth. Hardly a disaster ay? Clothing and internet - two ghastly things that investors hate - no money in thoose is there?

There might have been if you'd given those numbers as a prediction yesterday ;-)

eh - recent evidence is that the E European migration to Britain is beginning to reverse. With GBPEUR moving from 0.68 to 0.8, they can earn more at home, with greater demand for their services, than in UK.

Read somewhere over the weekend that in '04, when Poland joined the EU, a pound equated to a tad over 7 zlotys.... the rate today is 4.35 zlotys/pound. So the UK is not as attractive as it was to the Poles. Coupled with this, wages in Poland have risen, the economy is booming & AIUI, returning Poles have been offered a tax amnesty. The obv conclusion is the we'd better make the most of the Poles before they go home, as when they do, we'll be back to relying on untrained, overpaid, unreliable Brits ;-#)))

He said to me they go into their financiers and lawyers and they are all depressed, they ain't doing the deals, their bonuses are being cut, jobs are going - they are depressed and thingk it's the end of the show. He on the otherhand goes out to construction co's, meets with trading partners and everyone is very busy. What you hear from the city isn't what's going on in the real world. Yes things are slowing - but as we get through this the comparisons start to get easier for inflation and growth comparisons.

I find this interesting. My employer makes a widget used in large machines in semiconductor manufacture, plus a few other sections of precision manufacture and some funky things. First 4 months of this year have been our best ever.

Our experience was always that the semiconductor industry was one of the first things to go, and that manufacturing led the way into recession. It is amusing us (albeit as a touch of gallows humour) that the financial guys have leapt into the lead this time round.

Hi naeclue,

Interesting. I heard something interesting that the further away you get from the City, the less bearish people are, and there's a lot of truth in that.

Of course we're only talking about the extent of the coming economic downturn here. I don't want people to run away with the idea that I'm cheerfully denying there will be any kind of economic downturn at all, because that would obviously be wrong.

But I remain of the view that we're in the right sort of circumstances to see a modest downturn. Inflation remains historically pretty low, same with interest rates, and you just don't go into a Recession when that is the case.

Another thing that nobody has mentioned on this thread is the significant positive move in the pound versus the Euro in the last year or so. Remember that back in the 1930's countries used to competitively devalue their currencies, because if you devalue your currency it makes your international competitiveness better.

So GB plc is a helluva lot more competitive compared with Europe than it was 12 months ago. And considering the UK has attracted a very large part of the inward investment into the EU for many years, we could well see a resurgence of the UK as a manufacturing base for multi-nationals. Not for cheap consumer products of course, they will still be made in China, but plenty of other higher value added products are made in Europe, and the UK just got much much more competitive.

So it's not daft to imagine that we might see an export-led economic recovery happening at the same time as a general downturn in consumer confidence over the next couple of years.


It just seems to me that if you look for negatives you'll find them, and if you look for positives you'll also find them. Things are nowhere near as black & white as they were (as I recall them) in previous Recessions - when you had roaring inflation (>10%) as the main problem which had to be snuffed out & all sorts of other huge problems.

Regards, Paul.

"SirLurkalot - do you not think everybody feels like that tho?"

No, you, Paulypilot and Carmensfella, of those writing on this board, don't. When the last bull has given up, that's the time to be buying. As for now, there are people still buying each rally, and the economy has hardly started to suffer. (SirLurkalot)


SirLurkalot,

Was it something I said ? (certainly not on this thread!)
that put a price on my head...
I accept my glass tends to be half full,
So does that make me a raging bull ?

For sure I'm a little oddity,
but I too hold some commodity...
And I made sure I did not pass,
All that sexy oil and gas

Even now I may still be in for a tumble,
but will always remain humble.
Within this great TMF community,
I shall never expect immunity.

I hope I appear far from a fool,
and promise my box has more than one tool...
Indeed I suspect you put a price on my head
before reading yesterdays thread....

http://boards.fool.co.uk/Message.asp?mid=11034050



David

..he's a poet and he doth know it...

...mary had a little lamb
..it played upoun the grass.......

Whiost I suppose its possible that we may well see some renewed inward investment in this country, isn't it interesting to see the growing trend for some of our big companies to relocate their base out of the uk due to out high taxes on corporates?

Already we've seen Shire and united business Media announce that they're off to Ireland, how many more I wonder? That's not going to make life any easier for "our beloved Gordon Brown" or eyebrows is it? We're already set to excees the borrowing requirement that was in the last budget due to lower growth (and vastly reduced tax receipts from the banks following the write offs).

Hi Paul,

I heard something interesting that the further away you get from the City, the less bearish people are, and there's a lot of truth in that.

Yes - I'd agree with that completely......but it still doesn't indicate that one is right and the other is wrong, especially as most of the economists and fund managers are in the City! As you say later:
It just seems to me that if you look for negatives you'll find them, and if you look for positives you'll also find them. Things are nowhere near as black & white as they were (as I recall them) in previous Recessions
...there is no "universally accepted truth". But such matters of interpretation are considerably complicated by time lags, IMO! It is only now that, for example, we are getting folks in "the sticks" really understanding the impact of rising prices on their regular shopping [having had a few months for the impact to percolate their consciousness....even Radio 2 was just complaining about the price of cheddar cheese having risen by 17% in the last year]....and the same is true of fuel - only 2-3 months ago we had the fuss about diesel reaching 100p a litre....and now it is over 120p.

I'd also note [since I know most people value the comments of Warren Buffett more than those of myself and SirLurkalot ;-)] that Buffett was yesterday offering warnings:
http://www.reuters.com/article/businessNews/idUSN2847461420080428
Warren Buffett, the world's richest person, said on Monday the U.S. economy is in a recession that will be more severe than most people expect.....This is not a field of specialty for me, but my general feeling is that the recession will be longer and deeper than most people think," Buffett said. "This will not be short and shallow". "I think consumers are feeling gas and food prices," he added, "and not feeling they've got a lot of money for other things."

Returning to your post, you make a very good point here:
Another thing that nobody has mentioned on this thread is the significant positive move in the pound versus the Euro in the last year or so.....So GB plc is a helluva lot more competitive compared with Europe than it was 12 months ago. And considering the UK has attracted a very large part of the inward investment into the EU for many years, we could well see a resurgence of the UK as a manufacturing base for multi-nationals.....So it's not daft to imagine that we might see an export-led economic recovery happening at the same time as a general downturn in consumer confidence over the next couple of years.

Ex the issues of tax and trust in Government there is certainly something in that point! I recall Evan Davis of the BBC, at the turn of the year, forecasting such a change in 2008. However....again there are EVEN LONGER timelags at work - and perhaps there needs to be the global demand to fund the expansion before there will be much such investment?

all the best

emptyend

I am not sure I follow the logic.

A weak currency is great for exporting nations with lots of manufacturing, but the UK isn’t such a nation.

A weak currency is bad for importing nations that buy lots of manufactured goods, and the UK is such a nation.

Current currency rates look great for Europeans coming here for vacations which will give the UK service industry a boost.

The weakness of the US $ will also increase imports from the US.

These seem imo likely short term trends.

Regards,

Interesting today that Merv King talking to the Banking Committee was asked what business he was most impressed with in the UK.

To praphrase, he said it certainly wouldn't be in the banking sector he said. It would be the small prrivately owned businesses empoying 200-300 people, especially manufacturing. He said he had made an effort since becoming govenor to get out to the provinces and see businesses rather than sit in the city. He asked a company how can they compete against China. "Govenor, we export to them" he was told.

ST Micro raised it's forecasts for chip sales this year by around 14% I think I heard this am. Game Group came in with cracking results. Oh yes, Game Group is a special case like Asos - that doesn't explain a pretty decent statement from Carpetright imo - I'd have thought if we were all on our kneees with the weight of credit cards around our necks then carpets would then carpets would be one of the last things we would be buying and CPR would be having a much tougher time.

After a year of this subprime nonsense that isn't the sort of noises I'd have expected to be hearing.



CR

Hi CR,

I too was a bit surprised to read this:

A weak currency is great for exporting nations with lots of manufacturing, but the UK isn’t such a nation.

OK, the UK has a strong reliance on service industries, the City being the ultimate example, but I don't think anyone really understands what a great environment the UK is for entrepreneurs. Helps when you spend a few years away from your homeland.

I used to live in Yeovil, home of Westland Helicopters. At one point they realised they had 5 white collar workers for every blue collar worker, and even Michael Heseltine couldn't preserve this middle manager's wet dream.

With every downsizing after a prosperous period, trained apprentices and craftsmen were pumped into the local community, spawning engineering businesses and other specialist industries.

Now where is the centre of Indycar and Formula 1 car manufacturing in the world?


The real worry, in my view, is that we let managers stand up and say that it is a given that companies making billions in profits cannot provide decent pensions to future workers.

Rich

<<<<“ He said he had made an effort since becoming govenor to get out to the provinces, “>>>>>

Good old Merv King, “to the provinces” e’h, as far as that, in a country you can practically spit across that really is some achievement.

The parallels between Rome and Empire live on.

Sorry just could not help a bit of northern mirth which I am sure will not be shared by many.

Article in today's Independent with some anecdotal evidence suggesting Poles are starting to return to Poland..

Despite its brain drain, Poland's economy has been growing at a rapid rate – some 22 per cent, cumulatively, in the past four years (twice the rate of ours). Unemployment is down to 10 per cent (half of what it was four years ago). Wages are rising, as is the strength of the Polish zloty. A pound was worth more than seven zlotys when Poland joined the EU in 2004, but today it's down to under four and a half. That's a whole lot less of a reason to stay to do our plumbing and fruit picking. The editor of a London-based Polish newspaper recently said she thought that if the pound fell to three and a half zlotys, 70 per cent of our Poles would pack their bags.

http://www.independent.co.uk/news/uk/this-britain/the-drain-drain-what-if-all-the-poles-went-home-817153.html

OK, the UK has a strong reliance on service industries, the City being the ultimate example, but I don't think anyone really understands what a great environment the UK is for entrepreneurs.

Now where is the centre of Indycar and Formula 1 car manufacturing in the world?

Sure there are specialist UK manufactures but there is little volume here. Go out and try and buy mass market manufactured goods that are made in the UK. Not easy. Many manufacturers have some presence here but things are made off shore. Containers come in full and leave empty.

If you contrast now with a few decades back it is quite amazing. The factories have all gone. I was near a 25 acre site, once Leyland motors plant, recently. The whole thing has been leveled, the concrete, bricks etc smashed up and in hills ready to be used for the next project on the site: a few hundred houses.

I know several folk who worked there. I remember one telling me several years ago how he wanted to buy some machine tool widgets during some restructuring, but was refused. Instead they dug a big hole and tipped everything in. Maybe sooner or later someone will stumble across it and announce it was forward planning as they can now dig them up and flog the steel to China.

Whether this ridding ourselves of manufacturing was a good move I don't know, but it has happened and will take some extraordinary changes to many aspects of the UK if it is ever to return.

Regards,

Q1 GDP in the US came in @ +0.6%

The Jobs report from (ADP was it?) suggests 10K jobs added rather than 100K loss (not a very accurate guide admittedly but still the right side of expected).

Co's coming in with great results.

Where's the rescession?



Build in crude oil just announced - could mean a weak economy but also good for inflation.

CR

Build in crude oil just announced - could mean a weak economy but also good for inflation.

Or an increase in crude imports? Up to 10.2mmbbls/day last week

Q1 GDP in the US came in @ +0.6%

Is an annualised rate meaning the economy grew by 0.15% in Q1. Cracking given the huge boost from exports. Meanwhile in other data Canadian GDP contracted by 0.2% in Feb vs expected gain of +0.2%.

Oil demand is shocking though - following the lastest DOE enourmous (700+ b/d) downward revision for Feb demand US oil demand is currently contracting at around 8% yoy.

Hi,

BertEEE commented;

Oil demand is shocking though - following the lastest DOE enourmous (700+ b/d) downward revision for Feb demand US oil demand is currently contracting at around 8% yoy


I actually think the big rise in oil price is a good thing, as it's a precious resource that needs to be conserved. And the higher oil price stimulates development of alternative energy,
Yet America is totally profligate with oil, and they seem to think they have a god-given right to burn as much of the stuff as they like.

Every time I'm in New York it amazes me that most of the cars on the road are huge, gas-guzzling big V-8 engined things, pumping out pollution & in stop-start traffic probbaly doing little more than about 5-6 mpg. It's a horrific waste, and with any luck Americans will start to realise the benefits of using 40mpg+ diesel engined vehicles like most people drive in Europe.

Regards, Paul.

So + 0.15% isn't a recessionary quarter? I thought the press and the gurus were all saying that they thought we were probably already in a recession in the back end of last year, definitely by Jan they all seemed to be saying.

Dow breaking out through the down tend.

Will be interesting to see what happens with the Fed. I think they will do 0.25% cut and make some less negative noises. My bet is the S&P makes a decisive break through 1401 resistance this week.

I know loads of people hate charts but they definitely give youa snapshot of what's happening in the market on an index chart imo.

CR

It's a horrific waste, and with any luck Americans will start to realise the benefits of using 40mpg+ diesel engined vehicles like most people drive in Europe.

The yanks will never bother with diesel at a guess, they're essentially going for the Brazilian model - so it's cars like this new Chevy Volt thats due out in 2010 which is an electric car thats being designed to essentially run on ethanol that seem to be where the US market is going.

http://www.autocar.co.uk/News/NewsArticle/Chevrolet-Concepts/232038/

US crude oil demand has very probably already peaked a few years ago and may never now recover.

Fed cut of 25bp, no sign of end to fiscal loosening, CNBC trying to paint this as neutral - sell the news time, I think.

IMHO, this is an excellent point to apply hedges to one's portfolio with little risk of the markets maoving strongly ahead.

I've just sold a bunch of S&P futures at about 1400 since I disagree strongly that this market is one in which anyone should be chasing share prices when there is an awful lot of pain yet to be felt. I'll try and put a post together when I have more time but, for the moment, this market looks ready for another shakeout soon.

WShak

Hi there WShak,

CNBC trying to paint this as neutral - sell the news time, I think.

Your comment tempted me out of lurk mode. Just before the Fed announcement, there were a few HUGE OTC trades in very short-term US index puts. I think this particular dump-ette was entirely predictable - not just the simplistic "sell the news" type of reaction, but more clearly related to window undresssing at the month-end after we saw 5%-ish rises on the main markets. Given the round number phobia of 1400 on the S&P, 13000 on the Dow and the chartist view of these levels as important, I have to say I did the same, except that I sold the Dow at 12970.

Where we disagree (I think) is that the text of the Fed statement imples, IMHO, that 2% is here for a while and that the other determinants, namely the credit markets and inflation are seen to be at the least non-deteriorating and possibly improving and thus my view going forward is more optimistic than yours.

I think the sell-off after the number was inevitable, but VERY short-term. I have already taken back half of my shorts at 12830 and may well take the rest off tomorrow if, as I suspect, we continue the rally and over the next few days and weeks the market works back up to 1400/13000 and then goes through them.

RD

With the markets overbought one can expect profit taking on any excuse and the Fed meeting was convenient and as mentioned the desire to lock in profits from a good April will have been strong.

Going forward where will US investors put money?

Commodities, excepting gold which has sold off, are way up high so there is the danger of being the last investor in before a bought of profit taking, even if the secular growth carries on.

Interest rates are low so bonds are also way up and vulnerable to profit taking especially if the markets gets to feel the FED cuts are coming to an end.

Real estate is the pits, lots of supply, few punters. Commercial property is likely better but it needs a buoyant economy which they don’t have.

Then there are equities. One can find defensive stuff like the recently split up Altria paying over 5% and a whole host of exporting stuff that is thriving due to the weak $.

Unless I am missing something the current US sell off looks like a base building exercise with rotations from stuff that has been strong into weaker and better value.

If this theme is correct one can expect a little resting then a strong move to the upside for US index.

The UK though looks to be a long way behind the cycle and doesn’t have much export capability to take advantage of the strong Euro and as an importer will be hurt by rising prices from Europe, although mitigated some by the low US $.

Regards,

I've just sold a bunch of S&P futures at about 1400 since I disagree strongly that this market is one in which anyone should be chasing share prices when there is an awful lot of pain yet to be felt. I'll try and put a post together when I have more time but, for the moment, this market looks ready for another shakeout soon.

Yup - looks about right to me......

...the Fed is beginning to run out of puff when it tries to breathe life into the economy. So far they've just about managed to keep it fairly even, despite some major sectoral shifts.......but it can't continue indefinitely.....

....and more worryingly I think the UK situation is far worse, because Brown has no answers to solving the problems he's created [10p tax, pensions, housing/mortgages etc] - and the BofE isn't baling him out [quite rightly, given the inflation risk].

ee

Going forward where will US investors put money?

In their gasoline tanks?

ee

Hi RD,

Where we disagree (I think) is that the text of the Fed statement imples, IMHO, that 2% is here for a while and that the other determinants, namely the credit markets and inflation are seen to be at the least non-deteriorating and possibly improving and thus my view going forward is more optimistic than yours.

My bearish view on the market is based on this reply to a post of yours back in Aug 2007:

http://boards.fool.co.uk/Message.asp?mid=10674452&sort=username

Having put my perma-bear hat aside for now, I would agree that the lows have been seen and this is merely a correction, not the beginnings of a crash. I still think the Western economy is in a lousy shape on fundamentals but I think short term market movements will be driven by the FED's actions and those are plainly going to support the market. Bernanke is, if I'm permitted to use gangsta rap terms, Wall Street's bitch and he knows it. If he were in prison with any of these financial CEOs, I'm afraid he'd be doing whatever he needed to do in order to survive, and it isn't any different in the free world. Does he want to be seen as personally responsible for a collapse in global banking, just for the sake of a few points on inflation after years of indulgence by Uncle Al? Er, no .. despite the earlier tough talk of dispensing with the FED put.

As soon as Bernanke cut the discount rate to keep the Street happy, the bastards immediately started pricing in swathing cuts in the main Fed funds rate. Will Bernanke cut? Of course he will, because the FED never disappoints market expectations when it comes to interest rate decisions. Bernanke knew that he was opening the door to further demands when he cut the discount rate - hell, he's even made it clear that he'll do whatever's needed to keep everything afloat. The key point is that the cut in the discount rate will have been the opening shot of a medium term plan, knowing that they needed to keep more armoury in their lockers, namely cuts in the base rate.

So where does this leave us, mere mortal investors? Well, I think it's a fairly safe bet that any further weakness in the equity markets will be short lived as Bernanke dons his gimp mask and does whatever is needed to save the day. Does that mean that a crash can't still arrive? Of course not, just that it is delayed, who knows for how long? Maybe it'll never come as a result of the banking credit crunch, as tax payers bail out the institutions by accepting their lousy collateral via central banks worldwide?

The time for us to really start worrying again will be when all the cuts have been made, all the liquidity has been pumped into the market, the FED has exhausted it's moves and then the next crisis appears on the horizon.

As it happens, there was a huge rally from point on as Bernie The Gimp did precisely what I thought he would do and has put the world's economy in serious danger of stagflation as a result.

I now think we are close to the point I've highlighted, where the FED doesn't have much more that it can do on the fiscal loosening front and the economy is still thoroughly shagged. Keeping things simple:

Banks are slashing dividends and diluting existing shareholders in the dash for cash on their balance sheets.

Property markets are screwed.

Good businesses can't borrow money at reasonable rates.

Food and energy prices are soaring as a result of loose fiscal policy.

Nobody is now denying that a recession is now on its way in the States. The problem as I see it is that most people are assuming that it will be quickly over although there is little historical evidence to suggest why that might be, given the problems out there.

It's quite obvious to me that the cat is now definitely out of the bag and the situation is slowly moving out of control as loose fiscal policy is coming home to roost. There are fundamental problems out there which simply can't be sorted out in 6-9 months so anyone who thinks that is the timescale over which the blood will be shed before sunny days are here again is missing the point IMHO. I simply can't see where the optimism is coming from that this is simply a short, sharp correction when we have the nightmare scenario of lower profits (driven by a housing slump and it's knock on effects) and rising inflation (driven by an abandonment of the dollar).

I'm not saying that people should sell all their stocks and bunker down in their basements with a loaded gun. I just think now would be a very good time to plan for poor times ahead and lower positions in anything which is remotely connected to the health of Western economies. Apart from a few special situations, why on earth would anyone put capital at risk on businesses which have low visibility of earnings?

Paul will tell me that I've been a miserable bear for the last eight years and he's right, of course. I'd counter that I've been fully invested for the majority of that time and made money in every single year. It's not about avoiding risk just because of what the media are saying - I welcome risk but it's important to take it on in the sectors and companies which are most likely to reward us.

WShak

I've just sold a bunch of S&P futures at about 1400 since I disagree strongly that this market is one in which anyone should be chasing share prices when there is an awful lot of pain yet to be felt. I'll try and put a post together when I have more time but, for the moment, this market looks ready for another shakeout soon.

I sold some Dow futures after the fed cut spike. It is what i was waiting for to happen after the 1300 point move in the past 4 weeks or so, i was waiting for another big move up to short into. It is a bit like buying into a downward spike which people call capitulation, i.e. when the risk is small and not much downside left (or in this case upside) and therefore a good time to get in.

I am not too keen on indicies though..so i don't take big positions, i reckon there is still a good chance we get another big push up 2-300 point on the DOW to try and clean out some shorts from todays move and i will look to Short that spike if it happens. I still believe there is a decent move coming to the downside in these markets soon....there is a part of me although very long on commodities want a correction in commodity related plays so i can add to the long term upward trend. I think i will get that opportunity and believe that correction has already started.

Apart from a few special situations, why on earth would anyone put capital at risk on businesses which have low visibility of earnings?

Very true. As Sirlurk said it is best to stick with the stocks where the wind is blowing your way. No point buying those "cheap" consumer related small caps and HOPE the market will notice especially when one can take stakes in decent stocks that are cheap, growing and in a favourable sector i.e. commodities.

The problem as I see it is that most people are assuming that it will be quickly over although there is little historical evidence to suggest why that might be, given the problems out there.

Most people are assuming it will be quickly over but then again most people are wrong all the time...Warren Buffet does'nt think so, he sees the recession to be deep and shallow...so do i!

Isaac104,

Warren Buffet does'nt(sic) think so, he sees the recession to be deep and shallow...so do i!

Unless old Warren has crossed over to the dark side (TA), I think you've misquoted him!

Buffy

Sorry I don’t see such a bearish out look.

Wheat futures have come off:

http://cbotdataexchange.if5.com/dataEOD_F_chart.aspx?symbol=W/F.CBOT

because everyone, according to a farmer acquaintance, who could plough last autumn did and drilled in winter wheat. This after years when farmers have been giving up on wheat because the prices were poor. Of course it still depends on the weather for the harvest.

It isn’t clear to me that one can blame US food inflation on interest rates. The dash for ethanol is more of a culprit but that can be cured very quickly once the Whitehouse is won and the farm vote no longer counts.

A weak $ has brought up the price of oil, but with this has begun a switch to natural gas for transportation lead by T. Boone Pickens and the US has huge reserves.

Regards,

Warren Buffet does'nt(sic) think so, he sees the recession to be deep and shallow...so do i!

lol - that sounds funny because it does'nt make sense!!

What i meant to say is the Recession will be longer and deeper then most people expect....


Buffett: Well, I don't know about the stock market in terms of what it will do. My general feeling, and this is not a field of specialty for me, but my general feeling is that the recession will be longer and deeper than most people think. But what the stock market, the stock market often does not behave in sync with what's going on in business. So, I wouldn't want to predict what the stock market might do. My feeling from what I see in the economy is that this will not be short and shallow.

An interesting interview worth listening to here : http://www.cnbc.com/id/24352706/site/14081545/page/2/

.there is a part of me although very long on commodities want a correction in commodity related plays so i can add to the long term upward trend. I think i will get that opportunity and believe that correction has already started.

If you believe what you've written here:


Warren Buffet does'nt think so, he sees the recession to be deep and shallow...so do i!


Then I'd expect commodities to tank heavily in the coming years. In which case they aren't likely to be your best bet going forward.

I actually think the big rise in oil price is a good thing, as it's a precious resource that needs to be conserved. And the higher oil price stimulates development of alternative energy,
Yet America is totally profligate with oil, and they seem to think they have a god-given right to burn as much of the stuff as they like.

couldn't agree more, thought I would have said it would have been better for the price to be high due to taxation, which creates revenue for government, and curbs the need for other taxes or borrowing. Of course it's politically unacceptable in the US for gas to be expensive because of taxes, so it's a pipe dream.

The Electric car industry is really going to kick in during the next 10 years or so, tesla in the us have a fantastic lotus elise based electric car. It uses lithium batteries like those in a mobile, and has a range of 200miles. A french company is launching a compressed air car which also looks interesting. Once this technology is in the mainstream, it will put more demand on low load electricity (overnight), but oil requirements might start to fall.

It might be a long time before this sort of technology is affordable in India and china.

The great thing is as you say, that the high oil price pushes technology like this to be developed.

It is a finite resource, and it should be used with respect not wasted, not to mention the climate change effects, if you believe that side of things,

cheers K

Of course it's politically unacceptable in the US for gas to be expensive because of taxes, so it's a pipe dream.

A few of the presidential hopefuls in the States are actually proposing scrapping Federal duty on petrol for the summer to help Americans keep on driving ;-#)))) Clinton definitely & McCain as well from memory

I also find it hard to visualise the worst all being over. A bear market rally, maybe even one of considerable size and duration, yes certainly, but the bill being settled in full and final payment for one of the biggest, if not THE biggest bout of barking mad bubblicious excess courtesy of the fabulous bonus boys, that the world has ever experienced ? Possible, but likely ?

The United States is still the biggest economy in the world regardless of any supposed decoupling theories or suspicions that it's about to imminently donate the mantle to China, where capitalism is still in it's infancy and democracy a dirty word, or to India where in spite of massive recent progress, the vast majority of the population still live on two samosas a day. If the U.S. flounders, then it's difficult to see all of the optimistic assumptions about BRIC economies carrying the weight of the world on their shoulders in anything other than an extremely sceptical light. If the British economy goes the same way as the property obsessed, consumer deependent U.S. one, as not only seems a pretty safe bet but also looks like impacting even harder, and the rosy assumptions about the Eurozone also begin to wilt with ClubMed countries collapsing in a heap of overleveraged and overhoused Spanish consumers and Italian ineptitude, against a background of the first calls of freedom from the Euro, then how strong does the case look then for an end to the mayhem ?

Maybe under such a scenario, the BRIC story is merely hobbled for a while as opposed to being completely knackered, and maybe we really will all end up speaking Mandarin and working in call centres owned by Indian companies based in Bangalore as the 21st century unfolds, but we're not there just yet. When pondering such possibilites, it probably pays to remember all the assumptions about the Japanese taking over the planet which prevailed throughout the 1980's, which was worth experiencing just to be able to witness those unforgettable images of geordie shop floor workers doing their morning exercises and swearing oaths of allegience to the company chairman. " Ahh think ahh know wahh they caal im Mistah Nakada, cause ahm a knakerd afoor ah've ayvan stortad !"

So as ever, much rests on the shoulders of our over-indebted friends in the land of the free lunch, with the ultimate question being : has the shakeout been wide enough and deep enough ? is it commensurate with the outrageous excesses of the credit fuelled boom which preceded it ? If not, have the Fed and other U.S. authorities managed to plaster enough band-aids across the open wounds to convince enough desperate punters that a period of intensive care isn't necessary at all ? It's a dynamic economy that's for sure, with a track record like no other, but is it a miracle economy ? I think we on this side of the water, know all about miracle economies by now do we not ? Can it avoid the unavoidable, has it already been avoided ? As with our own lamentable state of affairs, there has been an over-reliance on consumer spending, in turn directly dependent on a massive house price bubble, now widely acknowledged to be the worst in American history, itself funded by virtually free credit afforded to anybody with a pulse by an over-indulged and corrupt financial services community punting ludicrous innovations and pocketing the equally ludicrous profits as the bonus culture was allowed to run berserk.

Even with so many people wanting it all to be over, or perhaps even as a result of it, it's hard to see the U.S. economy getting off the hook so easily and so quickly. Consumers there are on the canvas and don't to me, look like they're going to be getting up anytime soon. Oil and commodities continue to race ahead and as long as the Chindia stories keep going, will continue to do so, making a soft landing place for Main St USA difficult to find through my viewfinder. If the British economy now follows the path of the U.S. something which I expect to happen but only considerably worse, with the supposedly impervious Eurozone springing a few leaks in it's wake, I think it's very charitable indeed to think we might have the worst behind us, in all likelihood, it is still ahead.......somewhere.



Bialystock

which was worth experiencing just to be able to witness those unforgettable images of geordie shop floor workers doing their morning exercises and swearing oaths of allegience to the company chairman. " Ahh think ahh know wahh they caal im Mistah Nakada, cause ahm a knakerd afoor ah've ayvan stortad !"

I thought that was Sunderland, they won't like you calling them Geordies.

I'm amazed anyone makes long term put/call decissions on yesteday's US reaction.

You have the FED meet, knee jerk reactions and end of Q1 window dressing - bound to be some unusual trading.

Seems to me there's more trading on what they think will happen rather than wjat they see happening.

I think the bull play is the contrarian play myself.

CR

I think the bull play is the contrarian play myself

I do too....but I also think that the present time is a time to go with the flow and not stand in the way of it.......

...contrarian plays only work when you're only just ahead of the pack and they turn round and join you - but I frankly think that the pack is nearer panicking off in the opposite direction!

ee

You might be right regarding the oil sector being overbought.

Personally I look around and I see Gold high and comin off, property high and coming off, Commodites and soft commodites high, bonds high - that doesn't leave very many places for a lot of cash to invest in other than equities that are low, imo.


CR

I have gone short some Dow futures on this 200 point move as i thought we might get. Maybe another 100 point rally? I will add to my short as i strongly believe a decent move to the downside is coming very soon, early next week?

Hmmm, when the S&P has just broken through resistance @ 1401? All the yanks have been waiting for that level to go.

Non-farm payroll tomorrow, that will decide directoion and speed short term imo.

CR

Hmmm, when the S&P has just broken through resistance @ 1401? All the yanks have been waiting for that level to go.

Yep, infact i added to my short towards the end of play.

I think the bull play is the contrarian play myself.


I think the bear play is almost always the contrarian play. Its true bears (macro or sector) have been making lots of noise, but for the most part the markets remain, and have remained, fully invested. I would bet that most on these boards are as fully invested as ever. Markets want to go up. They like going up. And they don't like it when they go down.

US Non Farm Payroll down just 20K. Unemployment rate unchanged.

Recession?

Trade what you see not what you want to see imo.

CR

CR

I will be adding to my short later.

Yep, We're still in trouble but who cares, pile back in on full bull mode...

US Non Farm Payroll down just 20K. Unemployment rate unchanged.

Recession?

Trade what you see not what you want to see imo.

I think it's a little early to dismiss any possibility of a recession, or that it will be short and sharp. As we've seen over the last nine months, rallies in a bear market can be huge so it remains to be seen whether this is just another move up before another downturn or whether it's the real thing. I'm comfortable with my position and the sectors that I'm in.

It's worth noting that one of those supposedly cheap companies like Quadnetics (QDG) has just issued a profit warning and is off nearly 20% on the day. I've nothing against the firm and had even considered investing there in recent weeks after large Director buying but today is fairly typical of what happens in a weak market when razor thin profit margins are cut or orders get backed up. I remain of the view that it's just not worth the risk chasing these businesses simply because they are on a PE of 8 or so. Before you know it, you're invested in a business which has a PE of 16 or even no profits at all.

WShak

Yes WShak, you might be right.

I would say that the S&P has broken trough resistance at 1401 and closed above there and the Dow highs have broken through the down trend.

In past bottoming outs in the market I have also looked at what I saw in front of me and thought that I couldn't see any immediate reason for comfort. But the market defied my miserable attitude and 6 months down the line I realised the market knew more than me.

As for QDG, yep a warning. But it's easy to cling to that. I have seen Fridays that have had far more warnings that we saw today so one Quadnetics doesn't make a summer - there's a lot of good news out there too, like GFRM trading statement yesterday - who'd have thought with the housing market on it's knees, kitchen sales would be so strong, in a recession like this :-) The chart in QDG was telling a different story to the ccompany - the chart was right and what you could see elsewhere was wrong - perhaps like on the charts of the US too.

CR

A decent correction is due....i keep saying!

I reckon maybe Mon/Tues. I am not technical analyst guru but anyone looking at a candlestick chart will see that we are forming a hammer formation on the chinese candlestick DOW chart. A well known reversal pattern.

A decent set of job numbers, actually not decent at all..they lost 20K jobs...it was just better then what analysts expected.

Please note the volume over the last 2 months on this rally, compare it to previous months proceeding the rally. It is clear that small volume is pushing up this market and the big boys will dump.

Nice to see 120 points rally pre-open DOW market...clearly market is luring in amatuers. No disrespect CR but reading basic charts which connect points to read trend lines and see sudden breaks in the line does not always mean it is bullish. I have seen it so many times, a trend line broken temporarily for it to come back below or above it and resume its natural course. It is not rocket science to join points on charts and draw trend lines - very simple text book stuff. So many people out there think just because a downtrend line is broken it will resume upwards but that is not the case. This is a weakness which the big boys recognise of private investors hence the reason they push the markets above those levels, lure in amateurs (i am not calling you an amatuer CR) and then they wipe them out.

The markets rally before Fed cut rates (lure in amatuers on the long side) and then the markets sold of hard taking the little guys money - I wonder how many went short on this move. The next day they rallied the market and wiped some shorts out. Today they rally the market 120 dow points (luring in more amatuers on the long side) and then slam it back down taking their money, its up about 25 points or so now.

What is so annoying is the fact that it is always the small guy that gets hurt!!

We have had a 1300 point rally on the DOW, a 10% rise on the S+P in the last 6 weeks without a decent correction...there is no way that will continue.

The markets are slowly heading into historically the more quiter months of the year.

A decent correction is coming, the only thing that makes me bullish is the election year statistic that markets don't crash. Infact worse case scenerio imho is we go and visit the march lows...i don't think that will happen though.

I am expecting a very tough 2009 though, worse then 2008.

For now imho the risk is to the downside and i am very comfortable being short.

A decent correction is due....i keep saying!

For now imho the risk is to the downside and i am very comfortable being short.

Well I'd say you're a brave man since you are certain to be wrong in the long term.

Being short of the general market is always going to be tough no matter what the economic climate since most of the bad news will be priced in.

FWIW, I think equities are going to surprise a lot of people on the upside purely because there's a lot of cash ready to be invested but property, commodities and cash don't look like good investments either.

Well I'd say you're a brave man since you are certain to be wrong in the long term.

Being short of the general market is always going to be tough no matter what the economic climate since most of the bad news will be priced in.

Nigel....

Who said i was short for the long term?

I am short for the next big move which i believe is down. I will close my short on this move.

Look at todays intraday chart, more manipulation from the big boys. Towards the end of the day they were keen to close the DOW above 13,000 and up a few points. Just so the likes of CNBC can sing the praises over the weekend because the DOW finished over 13,000 for the week and being able to hold this level for 2 days or so.

Mr Joe Blogs sees this on Bloomberg and CNBC and buys on Monday thinking they are missing the next "bull run".

Next thing you know big boys are dumping into the buying volume at the little guys expense.

It is all psychology and the way the mass thinks.

The more and more i play this game the more and more i realise how important PSYCHOLOGY is and being able to read what the mass are thinking. If the media is bullish then most of the time that is what the mass tends to think. Or you can read a few of the active trading boards on ADVFN.

Everytime i place a trade whether it be a LTBH or short term if i ever become uncomfortable i get out very soon and take the hit. No matter what it is, i will take the hit if i feel uncomfortable for any reason - but obviously i look for reasons to be "comfortable" before cutting losses.

I feel very comfortable with my Dow shorts...Infact they hedge my long portfolio very well.

The strength in the S&P has been remarkable:

http://finance.yahoo.com/q/bc?s=%5EGSPC&t=1y&l=on&z=m&q=l&c=

Complete change in sentiment and part of the rally must have been short covering along with mutual funds who are often measured relative to the index having to sell underforming stocks to buy ones going up so as to maintain relative performance.

Following Bear’s saving there is currently much less talking of failing financials and there have been many fund raising exercises. Additionally the earnings season started badly with GE but then there were many positive earnings statements.

Oil and gold rallied as the $ fell but recently we have had rotations out of the oils and gold and into the financials. E.g. Goldman has gone from $160 to over $200. Exporters have been coining it with the weak $. Recent $ strength may, if it continues, eventually start to hurt the exporters, but for now many US business are doing good (based on recent earnings announcements.

Now we enter the weaker months, no fed meeting for a 4 weeks and no earnings.

One might argue it is obvious that the market will sell off and only shorts will prosper. A problem is that obvious things rarely happen in markets.

Regards,

It is all psychology and the way the mass thinks.

The more and more i play this game the more and more i realise how important PSYCHOLOGY is and being able to read what the mass are thinking. If the media is bullish then most of the time that is what the mass tends to think. Or you can read a few of the active trading boards on ADVFN.

Well you're a better man than me but I also think you might be kidding yourself somewhat.

The more I follow the markets the less I have a clue about direction (of the general market)

Mirrors my views. Credit crunch: Are we really through the worst of it?

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/02/cncrunch102.xml


Jak...

Hi Isaac,

You need to be careful about believing too much guff about manipulation and the big boys. The truth is that if it was as easy as all that, there would very quickly be futures funds out there which would own all the world's money and everyone else would be skint. The truth is that the big boys trade against each other and different groups of them win and lose every day. The retail punters are an inconsequence.

There's also a danger in getting too close to the price action, as if what happens in a day, or eve a week, really matters in the grand scheme of things - it doesn't. No-one really has a clue where the market is going or when a rally is going to run out of steam. It's quite possible for the current rally to take us to fresh highs and we should all plan for every eventuality. My thinking is that it's always best to plan for a major sell-off after a strong rally and vice versa, but not to be surprised if I mistime it substantially if I am wrong.

Looking at a chart makes much more sense in the futures market than it does for small caps but no chartist on this board will ever tell you what timescales they are looking at, or whether they are studying trend lines, support/resistance or moving averages - whatever. The trouble with being specific is that it's always then possible to use TA on a completely different set of parameters to argue exactly the opposite case so the "trade what you see" mantra is shown to be a tired cliche. It's all subjective stuff based on the timescales of "what you see", just as arguments over fundamental interpretations are.

Basically, it all comes down to whether you believe there is worse to come and whether it's priced into the market or not. Personally, I'm taking the view that a couple of months' headlines over falling house prices hasn't yet hit the common man and it'll be a good year before the shit has truly hit the fan. In the meantime, I won't let that stop me from investing where I think there is little impact from:

1. People being made redundant
2. People spending less
3. Bad debt being a killer
4. Inflation
5. Profits crumbling due to any of the above

To me, that sort of indicates the resource sector and pharmaceuticals as being logical places for my cash.

A true contrarian would be investing in US property funds right now, which seems logical to me but obviously not without risk. I'll certainly be looking at that at some point but the thing with property is that it's a slow moving beast and there should be a at least a 1yr window of opportunity when the tide turns so ther's little reason to rush in now.

WShak

CR: US Non Farm Payroll down just 20K. Unemployment rate unchanged.

Recession?

Trade what you see not what you want to see imo.

Mauldin comments on recent US GDP and Non Farm Payroll figures in his letter this week...

http://www.2000wave.com/article.asp?id=mwo050208

Both are clearly drivel.

Long-time readers know the problems I have demonstrated with the monthly employment report. It is one of the most revised reports released by any government agency, and for some reason the market seems to react to it like it means something immediate.

Let's take today's release. It showed a drop of only 20,000 jobs, well above the more negative consensus. The market immediately rallied, taking the thought that the economy may be on its way to recovery. But when you look at the numbers, that optimism evaporates.

The birth/death ratio is the BLS's attempt to figure out how many jobs were created by small businesses that do not show up in their survey of established businesses. It is a simple estimate based on past trends. You have to have this estimate to have any hope of getting the actual number right. And most of the time, the estimates are pretty good. Over time the numbers are revised and in a few years will be pretty close. But in times when the economy is slowing down, the birth/death ratio tends to overstate job growth because the trend is backward-looking. This month's birth/death number was particularly egregious.

April, for whatever statistical reason, has shown the highest number of birth/death jobs for any month. In 2007, the BLS estimated that 262,000 were created in April that they could not account for in the survey of businesses. Somehow, the spreadsheets at BLS had them add 267,000 jobs in April of 2008. That number includes an estimated 45,000 new jobs in construction! And this in a time when both residential and commercial construction are contracting. The actual survey results showed that construction jobs fell by 61,000.

The real GDP figure is just as bad, since it depends largely on which inflation rate they choose to adjust nominal GDP by. Obviously, they choose the smallest one ... which takes consumer reactions into account. I.e. if half the goods in your basket go up in price, but you avoid them all and just buy double portions of everything else instead (resulting in your basket costing the same as it did before) then inflation is, wait for it ... zero!

Lies, damn lies and statistics.

;o)

Loaf

WShak,

no chartist on this board will ever tell you what timescales they are looking at, or whether they are studying trend lines, support/resistance or moving averages - whatever.

As you well know, no chartist is permitted to write on this Board! However, some small references are being made but from time to time but to avoid the wrath of the FAs they are tending to be so broad brush as to be useless (as you say).

You may care to read my latest take on FTSE on the TA board, it is pretty specific in respect of all your issues:
http://boards.fool.co.uk/Message.asp?mid=11042101

Now that ADVFN has provided an excellent package, all those who wish to present their take on the technical position can do so on the TA board. For those challenged as to how to use the Pro-Chart package on ADVFN there have been a number of posts. Those with systems at home can use a super new facility picamatic.com to post to the TA board. really simple and very quick.

I try to ensure than any request for a chart of a security is answered within a reasonable time frame.


OC

Hi Was,

Thank you very much for your post - you make some valid points.

There's also a danger in getting too close to the price action, as if what happens in a day, or eve a week, really matters in the grand scheme of things - it doesn't. No-one really has a clue where the market is going or when a rally is going to run out of steam. It's quite possible for the current rally to take us to fresh highs and we should all plan for every eventuality.

You are absolutely right, the truth is i have no idea where the market will head next week. But based on the information out there i believe the odds are in my favour for a near term decline and therefore i am short the DOW. But there is at the same time every possibility that we go and hit new highs. So nothing is certain but i reckon more likely down then up.

Basically, it all comes down to whether you believe there is worse to come and whether it's priced into the market or not.

My view is there is worse to come..but the markets will not reflect that until next year after the elections. My experience tells me at somepoint we need to correct the recent rally. and therefore taking a short position is not such a bad idea. I am expecting a good run up in the weeks to the US elections...during that period people may wonder what the fuss was all about during the start of the year, but it is that point during great optimism the fundamentals will come home to roost! imho

To me, that sort of indicates the resource sector and pharmaceuticals as being logical places for my cash.

I too like these two sectors and believe they will do well in the downturn. I like Pharmaceuticals due to the aging population and believe Recession or no Recession we still need to buy medicines and keep healthy. Also the emerging market growth of Middle class and Rich will help with demand.

I am also looking at investing in Water, there could be a shortage of fresh clean water at somepoint. This will be worse then peak oil as with oil there are alternatives that can help short term like Biofuels and GTL's etc. But with water there is no alternative...we all need it to survive, clean and grow our crops etc. I am looking to invest in the infrastructure that converts/cleans to produce fresh water.

I also like alternative energy as an investment.

A true contrarian would be investing in US property funds right now, which seems logical to me but obviously not without risk. I'll certainly be looking at that at some point but the thing with property is that it's a slow moving beast and there should be a at least a 1yr window of opportunity when the tide turns so ther's little reason to rush in now.

I too will be looking at property but not now. Even after the property market bottoms I think it will take sometime for the recovery to occur...therefore i am not investing just yet as it will just be dead money sitting around. I want to see a clear turn in the property market first.

I am also weary of this...

Buffett cautions on long-term returns
Berkshire chief says he would be happy with 10% annual yield

OMAHA, Neb. (MarketWatch) -- Berkshire Hathaway Inc. Chairman Warren Buffett cautioned shareholders Saturday that returns in the years ahead from the company's equities portfolio, as well as gains from its own stock, will likely be lower than those seen in previous decades.
Buffett said he would be very happy to generate gains of 10% a year from common stocks over the long term but questioned whether that will happen

http://www.marketwatch.com/news/story/buffett-warns-long-term-stock-returns/story.aspx?guid=%7BF74E5BEC%2DFBFC%2D4C72%2D93EE%2D9DB987BCB1B7%7D

Those with systems at home can use a super new facility picamatic.com to post to the TA board. really simple and very quick.

Just wanted to say thanks for the heads-up with regards to picmatic Oldcharlie, it's a great, easy to use picture hosting site.

I've taken the liberty of informing the guys on the Photography board, as it comes in handy to have sites like that available for
hosting photos sometimes.

Cheers,

Itsallaguess

US real estate builders have been quite interesting. Looking at two of the biggest: Toll Brothers (Tol) and KB Homes (KBH) shows some interesting points.

http://finance.yahoo.com/q/bc?t=2y&s=TOL&l=on&z=m&q=l&c=kbh

Although this is one of the worst US real estate markets since the 1930’s with large amounts of unsold inventory and large rises in evictions these house builders share prices are currently well above the early January lows.

But it’s clearly a stock pickers market as although the trends on the house building share prices has been similar, the absolute magnitudes are very different: Tol is now down just over 20%, but KBH is down over 60%.

If the unemployment figures stay low, like last week, one can perhaps begin to think that the house builders saw their nadir early in 2008.

Regards,

Oldcharlie - are you 'Charting Charlie' that used to post on HemScott?

Cheers

CR

The Telegraph has an interesting piece today.

The move towards globalisation means very few UK companies do business solely in the UK, but we have studied the most recent sets of financial reports from UK-listed groups and come up with the 20 companies with the largest UK sales that count the United Kingdom as their primary geographic segment.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05//04/ccindex104.xml&page=2

As one might expect, its performance so far has not been encouraging. As our graph shows, the Telegraph 20 index has fallen almost 20 per cent over the past year as UK growth slows, compared with a fall of just 6 per cent for the FTSE100 over the same period, which has benefited from its greater exposure to growth rates in Asia.

Perhaps this shows that while it wise to be bearish on the UK, globally things aren't so bad.

IMHO it's clear that the domestic economies of the UK and US are in trouble, the big question from an investment point of view is surely whether the pain is about to 'go global' or not.

CockneyRebel,

No. I have never posted on Hemscott. I'm afraid there are a lot of posters with charlie as part of their names! More worrying is that there are other oldcharlies on other sites that are not me. I am oldcharlie on ADVFN but to my recollection I have never posted there!

OC

OK, ta. There was a good chartist on there that had his own charting site which was very useful, but it ended and I never heard from him again so wondered where he went.

Can't have too many charlies in my book :-)

CR

There was a good chartist on there that had his own charting site which was very useful, but it ended and I never heard from him again so wondered where he went.

Perhaps he got fabulously wealthy from chartism and retired?

;-)
Alan

Alan,

I'm sure that must be the explanation! He could have been strangled by some irate FA, of course!

OC

Perhaps he got fabulously wealthy from chartism and retired?

That's right.

And after retiring he went to live at Hogwarts castle, spends his mornings walking the Loch Ness monster, his afternoons playing golf with Tiger Woods and his evenings in bed with Marilyn Monroe.

Isaac,

But with water there is no alternative..

Surely there are desalination plants? Even the loon before Boris was looking at it, although strikes me the answer would be to flood a few thousand acres of Oxfordshire or Berks by building a new reservoir fed by the Thames.

although strikes me the answer would be to flood a few thousand acres of Oxfordshire

You bastard, Rob ;o) ... I live there! Welsh numpty.

although strikes me the answer would be to flood a few thousand acres of Oxfordshire

You bastard, Rob ;o) ... I live there! Welsh numpty.

Not necessarily your few thousand acres Bonkers, although now you mention it .. ;-#))) What's up, anyway, can't you swim?

The FTSE 250 breaking out, FTSE 100 just 5% off the recent highs.

US Production numbers were very good yesterday too.

I think the Dow was coming off yesterday no matter what but a lot of 'Ian Dury' reasons to be cheerful in the market imo

CR

Yes things are looking good at the moment. But is this a recovery or just a bear market rally?

If we look at the FTSE with a simple 200 day moving average:

http://uk.finance.yahoo.com/q/ta?s=%5EFTSE&t=my&l=off&z=l&q=l&p=,m200&a=&c=

one could argue that the current rally is not too different to what we saw in 2001 with two strong bear market rallies and then again in 2002 there were a couple of strong rallies but both fell away and it was not until 2003 that we got a real rally.

One could say that because we have now passed the 200 day simple moving average this time it is real and powerful. Certainly most, but not all, of the fake rallies didn’t get to the 200 day moving average so that is a plus.

On the bear side though is the record price for crude which ain’t good for punters, nor for many of the oil E&P which is amazing. Gold too has been weak, but I ain’t selling my gold mining shares just yet.

Dunno as usual it far from clear what is going and we won’t know till its history and can’t be profited from.

Regards,

An interesting read imo:

http://www.iii.co.uk/articles/articledisplay.jsp?section=Markets&article_id=9916434&campaign=newsletter0001&link=bearmarket_weeklyalert_268_211&cp_c=dcyng8



CR

Happy Loons Day Cockney.

None so blind as them that won't see Bert.

CR

<>None so blind as them that won't see Bert.

Ummm is that supposed to be refering to me?

Here's two quotes from recent iii articles by Ken Fisher.

April 9th : "Where is the evidence of an actual credit crunch? There is none. Everyone feared Bear Stearns's implosion - didn't happen! Bear didn't go kablooey - JP Morgan will have to buy it for five times its initial offer. Seems Bear wasn't so sick after all."

May 7th : "If the Bear Stearns implosion makes you jittery, buy the firm that bailed it out (with a little help from the federal government): New York-listed JP Morgan Chase (JPM). This one shouldn't make you nervous - it's America's third-largest bank with a great balance sheet and the best bank chief executive."

People might argue with the author's opinions, but he appears to directly contradict himself here within the space of a month on a pretty key point. One minute he's saying Bear Stearns didn't implode, the next he's saying it did.

Nit picking I think Nuke, it was just a turn of phrase in that punter perceived a B.Stern impolsion. B.Stern wasn't bust, nor was NRK - but once confidence was lost then neither could trade. HSBC could have been in the same position from market rumours but the BofE moved quick to stem the lies and now the FSA is supposed to be on the case of the liars that try to bust a bank like that - supposed to be, if they do anything as a regulator that is.

Bert, know, I was referring to myself, but if the cap fits :-)

CR

Another piece of Nit picking, I think HSBC should read HBOS.

Yep, correct Alf - sorry.

Does anyone here follow director buying/selling? Data is available on Sharescope. I know that buying shares in a company by just following directors isn't a safe passtime, but it's a good indicator to director sentiment towards the future - and across a range of companies these guys should know better than most of us, the likely future of their company's prospects.

The director buy/sell ratio is running at something like 20/1 at the moment, in fact you'll struggle to find an RNS with director selling and when you do it will likely be options being sold.

CR

CR - I'd be interested to know what the profit/loss positions are with some of these director buys. I don't follow these things religiously over all sectors, but I've seen a few ill-timed purchases in recent months.

I think you have to be judicious with what director buys you follow Nuke. I find that when a guy owns several million and he buys 5k that's attention seeking imo - not to be followed. I personally think the best buys are the ones you see when a company has been falling, had problems, got new directors and perhaps sounding like things may have bottomed in the RNSs.

Over the gamut of buys/sells tho, I would have at least expected to see the ratio to be a bit more even at least, if we were in for some dark period.

I don't know about you but I read the company reports each morning and I see very few outside the housebuilding/commercial property/finance sector where companies are negative - most are saying they are confident for the year forward from what I read. Surely after a year of this 'crunch' we should be hearing far more caution?

CR