The past few months have meant that we can quite correctly be accused of focussing on, virtually to the exclusion of everything else, the unfolding tale of economic deterioration that has been occurring around the globe. The result has been that other frankly more important and significant issues have been almost ignored.
There are many side effects to the rise in commodity prices and especially for any of the weaker emerging and “third world” economies. Those that have been blessed with extractable ores and carbon based fuels should have been benefitting from a boom in their value. One can only hope that some of this might filter through, either directly or indirectly, to the broader population - although sadly the levels of corruption often seem to act to severely minimise this.
However, there is also a darker side. Those less fortunate countries with few natural resources are suffering the reverse of the beneficial windfall for others. For them, the rising cost of commodities, both metals and “softs”, are having a severely detrimental effect on their economies and, more fundamentally, the lives of their populations.
Whilst many in the wealthy Western nations are fretting about their slowing personal economies and worrying over their impending Summer holidays, others have far more vital and fundamental issues to address – their survival. Although we may become anxious about the price of fuel and food, at least we have access to both.
Quietly but frighteningly, the dark shadow of famine on a huge scale is now spreading across the Horn and the Eastern states of Africa, with yet again Ethiopia at the epicentre of this oncoming disaster. As well as the basic cost of food, the situation has been significantly exacerbated by the effects of another prolonged drought. The current expectation is that some 14 million souls are in need of emergency food aid spread across some five nations, stretching as far south as Kenya and Uganda.
The Ethiopian situation has been further masked by the government there subsidising food prices this year, especially to the urban poor – all presumably to avoid the hideous food riots we have seen elsewhere. Although a high risk and ultimately disastrous policy, it has been further compounded by the astonishing rise in the local staple goods, including local white maize - up by some 150% from this time last year.
Perhaps we should be caring less about a Bear market and focussing more on a Care market.
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Meanwhile back in the equity markets, we are finally seeing the much anticipated rally and we should appreciate it along with the current burst of British Summer, although I suspect its underlying strength might be just about as reliable. Lower oil, some relief over the banks, regulatory action taken in the US and even some companies beating already lowered expectations – all have helped to push indices higher. However, the economic backdrop is still poor and there is still a lot of unwinding of borrowing to be done.
It is thus that at times like these, those other asset class struts will be providing some much needed support over the next year or so. The order therefore for investors is still to keep investing, but not into the riskier asset classes and areas.
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And finally.........apparently the total cost of crime in Britain is around £15 billion - made up of the loss of property, lost economic output, services for victims and the cost to the economy. This works out at some £275 from each us. To put this into perspective, this is about £4 billion less than the £18 billion raised in the recent rights issues from both HBOS and Royal Bank of Scotland to cover some of their significant losses and stuff in the holes in their weakened balance sheets. So what’s the difference between a criminal waste of money and money wasted by criminals?
Have a good weekend,
Justin A. Urquhart Stewart
Director
Seven Investment Management Limited