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Market commentary February 2009

By February 8, 2009No Comments

SUMMARY.  The media newsflow is very negative, particularly around the emotive, but undoubtedly serious, unemployment trend. Nonetheless, if “less bad” is the new “good” for 2009, the last month has been good. 

Less bad is the new “good” in 2009. And on that criteria the last month has been good.

In the latest TopFunds Guide we consider signposts for recovery, distinguishing between those that tell us what happened, those telling us what is happening now, and those that indicate what might occur looking forward. Here are a few from around the globe.

Over the last week a US purchasing managers survey (forward-looking) suggested the worst was past, even if recovery was not imminent. Halifax reported a small increase in UK house prices in January, though others reported falls – the truth is probably somewhere in the middle, with widespread reports from estate agents of much greater interest from buyers.

Short term Treasury bonds in the US have been a safe-haven for vast sums, driving yields to negligible levels. The recent edging up in the yield on these suggests a little increase in confidence as investors are prepared to go elsewhere for much higher yields accompanied by a bit of risk.

The Baltic Dry Index is a measure of the cost of shipping dry commodities (so coal and steel not oil) and this collapsed last year as global trade came to a grinding halt. In recent days it has enjoyed a record rebound, still a long way off the peaks last year, but it is a significant early sign of stability. Not surprisingly, the Chinese stock market has also been recovering from its lows, and there are signs that their huge stimulus package is beginning to have an impact (which the media is ignoring to a large extent).

At a recent Goldman Sachs conference it was notable that forward-looking indicators employed by the speakers suggested the worst was over, but they didn’t appear to have the courage to acknowledge this.

This quarter will feel unpleasant as there will be a large media emphasis on the emotive, though nonetheless very serious, increase in unemployment. But this is largely a backward-looking indicator, and unemployment will likely continue to rise even as the economy begins to recover, and leaner and meaner businesses that survive will want to enjoy the thicker profit margins for a while before recruiting again in earnest.

Last but not least, despite the continuing negative newsflow, the UK stock market remains 16% above the lows of the Autumn. While we must acknowledge the continuing risks in the unique environment in which we find ourselves, if you are prepared to peer through the gloom, there are stark opportunities, as we explore in the latest TopFunds Guide – do email or ring for a copy.

Dennehy Wealth