I can only assume that investors at home were equally likely to be feeling as seasick as I was whilst sitting on a catamaran riding the Atlantic rollers. Maybe we are all in need of a packet of financial “Stugeron”.
So this has been one of the worst starts to a year for the FTSE100 index for some time and in fact we have to go back to 2000 and 2003 to find some worse figures. Of course all that this really tells us is that such periods of volatility are actually not that uncommon, but that when they do occur they are somewhat nerve-wracking.
Such periods of gloom tend to bring out all sorts of irrational behaviour varying from bullish buyers trying to catch the anticipated turn around and a return to a boom, through to doom laden depressants predicting the end of the world as we know it. Of course neither is likely. It is far more likely that as we are in a bear market that we are going to see a period of more volatility with further falls and faux bear market rallies.
These rallies will certainly provide opportunities for the day traders and the brave as well as foolhardy, but they are likely to be short-lived and have equally dramatic falls. Having said that there will be opportunities to pick up stocks which seem to be priced at some attractive value, but private investors should only enter on the basis of being willing to take a five year view.
Oh yes and one element of this I am finding is that the numbers of bogus calls from overseas “boiler rooms” seem to be picking up. One couple I met recently said that they had received over 200 such calls over the past few months and that some of these had become quite aggressive. To all investors please do be aware that these are unregulated operations out to scam you of your money and remember that if anyone is offering you something that is too good to be true – then it usually is.
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One of the most important issues for amateur sailors is to try and avoid the rocks. Not a perfect analogy but perhaps our Government should be trying to do the same to avoid our public finances running aground. Apparently everything is currently well within the “Golden Rule” and our national books will be balanced over the cycle. I find this “cycle” somewhat strange as it has been extended from some seven years to now eleven years without even a blush of Treasury embarrassment (or even seemingly a whimper from the Opposition).
According to the concept of the cycle, we should now be in a position when we are reducing Government borrowing after a lengthy period of increased expenditure, but that seems to stand at odds with figures from the Institute of Fiscal Studies (IFS) and the National Institute of Economic and Social Research (NIESR). It would appear that these two eminent bodies have in fact come out with very similar figures implying that diametrically the opposite to reducing borrowing will be necessary and that instead of paying down debt, the Government will have to raise taxes further to cover the increased shortfall. The IFS says they will need £8bn (that is the equivalent of 2p on Income Tax) and the NIESR £9bn! It will be interesting to see what comes out in the Budget (now set for March 12th) which will, I suspect, focus on a stimulus package as put forward by the US administration.
So for all the talk of the end of the “boom and bust” in the UK economy, that is exactly what we seem to be returning to.
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And finally…….resurrection has always been a challenge, but especially for a gentleman in Poland. It appears that Piotr Kucy, 38 and from the city of Polkowice in southwest Poland, was wrongly identified by authorities last August as a drowned man. In fact he was to in fact to show up a few days after his own funeral looking remarkably well. Despite pointing out the fact that he was alive to government officials, Kucy still remains dead in official records, stopping him from working and paying social insurance. However, the one upside to being “dead” is that apparently he no longer needs to pay taxes.
Well that’s one way around Mr Darling’s budget.
Have a good week,
Justin A. Urquhart Stewart
Director
Seven Investment Management Limited