“It took us three years to find someone to manage our wealth, and we can now sleep at night! ”

Darren and Ruth Johnston (Semi-retired entrepreneurs) (N Wales) (2011)

Super Ben to the Rescue

Posted by jdavis on January 24, 2008

So, we’ve had the biggest US rate cut in one go in a quarter of a century.  (In fact, it’s even bigger than that because rates were so much higher in the early 1980s so the relative change is much larger.)

So, instead of the Dow Jones opening 500 points down (which The Futures market was suggesting) there was instant appreciation by ‘Mr Market.’

I’ve waited ‘till today to write a few words on the momentous event in order to be able to watch how things develop and view serious players’ reactions to the move.

All in all, our view remains that nothing has changed materially.

I said rates would fall to save the stockmarket but the market cannot be saved.  The US rate is now down 1.75% yet the market is down too.  (The S&P 500 had been at 1570 and it went as low as 1260 (a fall of 20%))

I said all that the governments and central banks can do is defer the inevitable and that is indeed what is happening.

In FTSE 100 terms, we were above 6700 in October and we went to 5300 this week – a fall of 20%.  That is a crash by any other name.

As I type, it stands at 5830 and there appears to be a short term bounce in place.

In the Far East, markets have fallen even further – Japan went down 28% and Hong Kong (closely linked to China) went down 33%!

The global banks wrote off c $100 BNs last year, in the second half.

In three weeks this year, they’ve already written off 10s of $BNs.  There are probably hundreds still to come!  We may not be at the bottom yet.

In our view, there will be a further leg down though we will know more in a while after the market has risen above 6000.  We will be able to see how the rally is developing, or not.

The global economy’s rate of growth is declining and this is impacting on asset prices – shares and property – negatively and gold – positively.

In fact, gold is surprising to the upside.  You will know well that we have been very strong proponents of gold, commodities and agricultural produce.

It depends on the US $.  If it stretches its short term bounce – and it could do as the US Balance of Payments’ deficit is helped by increasing exports – then gold and other commodities will fall markedly – IN THE SHORT TERM.  In the long term, these are going to the ‘moon’, while the $US is going to, er, Australia.

It’s too close to call what will happen in the short term.  Remember, the market generally does – in the short term – what is least expected and least logical, apparently.

A client asked me – so all this selling (of the last few weeks) – what did the organisations do with the money?  Quite simply, the bulk either stayed in cash or they used it to buy short-dated government bonds (Gilts in UK, Treasuries in US).  These can be deemed cash-equivalent.

What to do?

For those clients with significant cash holdings in pensions, ISAs, offshore bonds etc you could come back into the market, tentatively.  Anything around 15% off the high is worthwhile.  If you wish to do this do please contact me – those who we haven’t had regular reviews with yet.

However, if you defer the decision to go back in, on balance, I think you’ll be rewarded.  As I say, we’ll know more as things develop.

This may make you chuckle – I shall be having a drink with Fred Harrison this evening.  He wrote the seminal work on house prices called ‘Boom Bust: House Prices, Banking and the Depression of 2010’.  He’s just a laugh a minute!

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 in macroeconomics with financial planning tools to provide excellent financial advice to high net worth families.


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