“Our only regret is that we didn’t meet Jonathan Davis ten years earlier”

Prof Michael Arthur (President and Vice-Chancellor, Univ College London) and Dr Liz Arthur (Southampton NHS Trust) (2009)

The recession is over. Thus, sell shares!

Posted by jdavis on August 27, 2009

This was emailed ONLY to clients and the professional advisers who work with us. Then after a few weeks we put it up on the site.


We believe that, after 4 quarters of falling GDP, the next announcement or the one after will show that we have experienced a GROWING economy in the preceding quarter.

Thus, technically the recession will be over.  All together now ‘Happy Days are Here Again…’

Allow me to remind you what, technically, is deemed to be a recession – two consecutive quarters of falling GDP i.e. negative change in the economy.

According to Mervyn King, the Governor of the Bank of England (this will make you sit up) “The Bank expects the economy to contract by an annual rate of 5.5% at its lowest point this year – an even deeper dive than experienced in the 1930s – let alone any of the other postwar recessions. One doesn’t need to ask questions about 'the worst since when’ since it may be hard to find any period in which it was actually worse.” (12 August 2009)

With all the government stimulus, it is inevitable that this short term fillip will produce positive growth – short term.

If we are right and the economy is shown to be growing then that’s great isn’t it? We’re saved, aren’t we?

In a word, no. Soon after, perhaps after two or three quarters of anaemic growth we will fall back to technical recession again – although for the populace it will not feel that we pulled out of actual recession at all.

What do we know?

  • Unemployment will still be rising c 100,000 PER MONTH to next year
  • Government debt will be the biggest peace time ever
  • Pensions (generally) and house prices are way down from the highs but household debt is still where it was i.e. massive  

You need 30-40% deposit to obtain a reasonable mortgage

Those who took out 2-year discounted fixed mortgages in 2007 are now seeing massive rises in debt costs

Buy-to-Letters cannot raise rents

  • Business investment is down 21% on last year (and 10% down for the last quarter!)
  • Banks have such huge unreported bad and doubtful debts they will not lend freely to households and businesses for many years
  • Corporate and personal bankruptcies remain in huge numbers

    What can we expect?

  • There will be 100s of thousands of houses and flats in distressed sales coming on the market over the next few months through to next year (but far fewer buyers)
  • Our currency will go into freefall when the global markets stop lending to Her Majesty’s Government
  • Next year, after the General Election we will have higher taxes and very big public spending cuts by the incoming government and it will be thus for at least a decade (the other way around if the incumbent party retains power – but with the same effect on the economy).  NB. Take 10% out of the economy by cutting public spending and you reduce the economy by 3%...)

But house prices have risen this year and look at the stock market!  Yes, interesting isn’t it? 

Almost entirely built on sand with absolutely no foundation. Principal reason?

Government stimulus. When that ceases there will be nothing holding the markets up.

So, I write this today for two reasons,

1.   I wrote on 3 August that I wondered for how long the stock market would continue rising?
I am rapidly approaching the point when I feel the next peak may be very close.  Close enough to start talking to clients who will be materially and detrimentally affected if no action is taken. Thus, most clients should expect a call over the next few days.

2.   On the day the media is going wild about the Nationwide’s monthly house price survey showing a 1.6% rise (a survey based on mortgage approvals (before last minute adjustment to agreed price) not cash purchases and some three months out of date) the media entirely omits to even mention the report from The Office of National Statistics that Business Investment is down over 10% quarter on quarter and down over 21% year on year.

ONS Business Investment numbers Q2 2009  (Wild? I was absolutely livid...!)


By the way, you may be interested to read this, published today on the BBC Business website: Head to head views on house prices (BBC Online 27 Aug 2009).


A producer on a TV programme said to me this week (entirely understandably) – (I’m paraphrasing) ‘It’s so difficult to know what to think about these things. One day someone says this and the next day someone says something different.’

My response: The economists (that’s a laugh!) change daily but the economics do not.  The wider backdrop is what matters.


Watch A 'doomsaying' Scotsman warning the nation. Enjoy! (Not for the most fainthearted!)

No doubt we’ll be ever vigilant to preserve capital and grow it when we can.



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