Midst a volatile stockmarket and more hysterical press reporting it is possible to have over-looked the positive signs, which are very real. And did you hear the one about the US dollar?
Over the last month the UK stockmarket has been swinging around, down from 6700 to 6000, now heading back up again (around 6400 as we write). Positive comments on the likelihood of more rate cuts by the vice-chairman of the Federal Reserve in the US has triggered the latest bounce. We expect news on UK rate cuts this Thursday (6th December). Where the market might lurch or tarry in coming weeks is anybody’s guess, but there are some interesting signs for those with an attention span greater than a gnat.
We would normally like to be able to identify the moment of maximum fear (lurid, hysterical headlines, panic selling) before calling a bottom. But it’s not always easy to spot except with the benefit of hindsight, and just possibly we had it in August as the FTSE 100 fell towards 5800. If not, it lies ahead, down towards 5500. However it turns out, there are straws in the wind that suggest either that the worst is behind the stockmarket, or that falls to these lower levels will be too short-lived to be exploited by most investors.
For example, in the last few days the 10 year Treasury yield in the US fell as low as 3.8%. No inflation-proofing, just a flat income. In contrast, Barclays shares (down 25% this year) have a yield of 5.4%, with a current likelihood that it will be maintained. Plus if the battered banking sector can’t be assumed to enjoy a recovery in share values over the next 10 years, then we should be sticking our money under the mattress.
At the flakey end of the banking sector the Virgin consortium is prepared to commit huge sums to take on Northern Rock, with Branson reported as being prepared to invest £200m of his own money. Sir Richard might not be everyone’s cup of tea, but he’s not stupid.
In the equally battered commercial property sector, shares are at 40% discounts to asset values, and funds invested in the sector have yields higher than 7%. No wonder it was reported that one Dubai company, with $7bn of assets at its disposal, saw this as a “huge opportunity”.
No one rings a bell to announce the bottom of the market, but if you can hear a faint ringing, it could be more than the approaching Christmas reindeer.
If you can’t make it over to New York for your Christmas shopping, one for the Christmas stocking might be a wad of US dollars. Once a trend permeates popular culture you know it’s near the end. Rapper Jay-Z is seen in a recent video with fast cars, scantily clad women, and that great global currency icon – the euro!? A super model is snubbing contracts in US dollars. And rapper 50 Cent is considering re-naming himself 25 Pence (allowing for the $/£ exchange rate). OK, the last bit is a joke. Happy Christmas.
