Our domestic news in the UK in the past week can hardly have given anyone much cause for confidence but equally, for regular readers, none of this should have come as any surprise.
The only surprise about the announcement that consumer confidence was at its weakest for four years was that it was only four years. The UK consumer is in a very painful position and one which potentially is a lot more excruciating than their American cousins. Taxes are up, the cost of food, housing and energy are also up and in real terms most incomes are probably down. At least in the US there have been some modest tax cuts and even rebates, with government handout cheques arriving through the post as I write.
With nearly half of our economy dependent upon consumer spending I believe that the politicians of both main parties have overtly or inadvertently connived in the pain of the UK consumer. We have been exhorted to continue to spend even more, been allowed to borrow too much too easily and are now criticised for not saving and for not paying our own debts. Do me a favour – no one can achieve all of that at once. This has been building for some time and I am afraid it just reflects the short term nature of our politicians.
To underline this nervousness in the market, at least two leading figures from retailing, one of whom is Sir Stuart Rose, CEO of Marks and Spencer, are not expecting any sign of a retail recovery until the latter part of 2009 – probably not what Prime Minister Brown wants to hear.
Thus the markets are going to have to take greater account of this weakness and the current results season merely looks back at what was a relatively prosperous period and any guidance from those figures for the future would in fact just be preposterous. Expectations will have to be lowered, analysts will have to reset forecasts and the markets values adjust – such is the cycle.
At the same time as this resetting process we will enter the phase of write downs, failures, repossessions and bankruptcies. It may seem a somewhat dismal view but one that is quite likely. The comments then from the Bank of England that the worst may be over I think refers only to the City issues and does not take account of the wave of financial fall-out that is flowing into the High Street.
However, more encouragingly, we have also started the recovery process. Every bank that declares its bad debt provisions and write-offs is in effect identifying and cleaning its wounds. As the rights issues are announced and some dividends shaved, this too will mark that effective action is at last being taken. After that, as asset values stop falling and start to flatten only then may we start to see greater confidence return and banking liquidity and trust issues begin to significantly improve.
So do we sell in May? Perhaps my repost should be by way of an equally annoying City rhyme “it’s not timing the market but time in the market”. Fidelity has recently updated some fascinating figures which underline this. If you had been invested in the FTSE All Share between 31st March 1993 and 31st March 2008, some 3914 days, you would have received a return of 8.49% per annum; however if you had missed the best 40 days out of those 3914 your returns would in fact have been negative at -0.54% pa. Thus on that basis timing the markets is almost impossible. So probably best to stay in May – just in case we do have one of the next “forty”.
And finally…..it’s not just religious services you get from your church these days but now telephone and media services too. Pope Benedict XVI is starting a text messaging service to young Catholics. Along with this there will also be a “digital prayer wall” and a web based social networking site – presumably called Faithbook? I wonder how long it will be before they start selling ringtones?
Have a good weekend,
Justin A. Urquhart Stewart
Director
Seven Investment Management Limited