“Jonathan Davis Wealth Management have saved my wife and me from losing 40% of our net wealth over the last 12 months”

Robert Gaunt - Outsourcing/Offshoring Consultant and Renate Hechter (Sydney Australia) (2009)

Is the bear still growling?

Posted by jdavis on February 1, 2008

Let’s look at what we’ve had:

The FTSE has seen levels last seen in early 2006 – as we forecast months ago.

  • Western stock markets down 20-25% (As we said a long time ago – when the US sneezes we catch a cold and the same goes for our respective stock markets)
  • Eastern stock markets down 28-33%
  • Federal Reserve of US cut the interest rate 1.25% in a week (0.75% last week and a further 0.5% on Wednesday 30th January)
  • Fed slashed from 5.25% to 3.0% in around 2 months
  • The Financial Stocks’ Index in the US reached an all-time high of c 410 about a year ago (not long after we had turned bearish) and reached 235 last week (!!!)
  • Global Banks wrote off over $150Bns of bad debts in the last 6 months
  • Banks have recapitalised with money from Middle and Far East
  • At close of play yesterday, this index had risen to 288 (an increase of 22% in a week!)
  • The Financials’ Sector accounts for 25% of the S&P 500
  • $:¥ reached a 2 and a half year low of ¥105 : $1
  • € very strong due to Trichet, President of the ECB, saying how anti-inflation his bank is and will remain
  • Inflation taking off all over the place
  • $ hits all-time lows on the Trade Weighted Index
  • Precious metals (incl Gold), agricultural produce and commodities hit all-time highs – because of the last 2 points. (Gold moved from $640/oz last summer to $935 on the 30th!)
  • Commercial funds and residential property values still going south – we have merely seen ‘The End of the Beginning’.  In the Far East, with their currencies revaluing, there is good long term opportunities for property.  Similarly, this applies to Germany.
  • There’s one other thing…2 days ago, The US SEC (in the UK it’s the Financial Services Authority) signed an agreement with China.  The Chinese will now be able to buy US stocks into their unit trusts.  So, what?  Well, it means that the $2.3TRNs of savings in China will now be looking West.  There is now more demand than supply…

Put it all together and is the bear still growling?

‘No, the bear is probably hibernating.’

This adviser has been bearish for what seems an eternity (well over a year certainly) and our clients’ investments have been largely in cash for a long while, with some equity holdings and some small move into gold funds.  We have made some profits and we HAVE NOT LOST money.  We want to make some and we think, TENTATIVELY, the time has come to re-enter the ‘markets’.

It is true that, just last week, we wrote saying that not a lot had changed after the 0.75% cut.  Well, we looked again following this further 0.5% cut.

We are no longer ardent bears.  Yes, you read that accurately. ?

We are now speaking with our clients and advising that their portfolios be reviewed very soon.

If one is intransigent when, all around, the reasons for a conviction have all evaporated then one is trying to outwit the market. The market will always win because the market is always right.  Often, as last year and as now, the market gives us signals.  And the signal is THIS MARKET IS HEADING UP.

Longer term – it really is too early to say (as the Chinese Leader replied, in the last century, when asked what he thought of the French Revolution…). 

Will we have another leg down?  It’s possible.  Have we seen the lows?  That is more likely.  Will we retest these lows?  Also, likely.

Is this a good time to invest for the long term?  Yes.  (Far better than during 2007.)

Potential threats:

  • The market could – and probably will - pull back to retest last week’s lows.  However, we are increasingly of the view that there will not be a third leg down beyond any retest.
  • Gold could just as easily get to $1050/oz as $850/oz.  Its all about the $.  If Trichet performs an about turn and goes soft on inflation then the $ will rise and gold will fall sooner rather than later.  This will spook the market generally and the wider market would pull back.  Longer term, Gold has much much further to go.  As have agricultural produce.  In fact, this latter sector will grow even more…

What to do

  • Call me ASAP and re-establish your portfolios out of cash and into bespoke funds
  • If you are cautious, then step in with say 67% of your portfolio.  If the market pulls back then all to the good and you can step in further.  There will always be apull back at some point, however, not necessarily to the absolute lows of last week
  • As the $ may rise and this will pull gold etc back, step in now with your whole portfolio however with reduced exposure to these volatile (yet ultimately strongly rising) sectors.  If and when they pull back then readjust the portfolio with full (normal) emphasis to these areas.

What sound does a bull make?  I don’t know but I’m making it!

Please remember, investments can fall as well as rise – and they will.

As ever, if you have any queries – and I ‘m sure you have many – please do not hesitate to contact me.

Who do you know who could benefit from a no-obligation review of their investments. We tend to work with clients who hold upwards of £300,000 in investments and cash (or who are 6-figure earners) and many of our clients have 7-figure investment accounts.  We’re looking for our first 8-figure client.

We merge our expertise of markets and macroeconomics with financial planning tools to provide excellent financial advice to high net worth families.

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