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Michael Pinhorn - Telecommunications Consultant and Saleha Pinhorn (Languages) (Berkshire) (2009)

Dubai? No, in fact I'm trying to sell but there are few buyers...

Posted by jdavis on November 27, 2009

This email was sent ONLY to clients and the professional advisers who work with us. After a few weeks we put it up on our site.

The name of our game is to hold on to capital until the true bottom presents itself in 2010-2012 (on the basis that the markets’ slump is similar to the 1930s crash. So far it is very closely following that route). Then, as we get lower and lower your risk of loss reduces further and further by re-entering. Then, we can start going back into the market and the decade afterwards should be very interesting indeed and, hopefully, super profitable. We see every reason to expect this – if you can hold onto capital during the falls then you will buy much more, with the same amount, at much lower prices.

That, in a nutshell, is what we are currently aiming to achieve for clients. Long term growth with preserved capital after this medium term slump.

Please remember, investments can fall as well as rise. And they will!

Please also remember, no trend goes in a straight line. Otherwise it would be called a straight line! The trend in houses and stocks is still very much down, in our view.

Who do you know who could benefit potentially from our type of advice? You are welcome, of course, to pass this email on or suggest to them to look at our website. We will always happily speak to anyone on the phone. It is never a useless exercise or a potential waste of time. If however we feel we cannot add value to their circumstances we will always try to help informally.

BBC: Shares' markets rattled by Dubai debt fears

So, pronounces the headline on the BBC website today.  It started to come out on Wednesday evening, after most of Wall St had switched off their trading screens for Thanksgiving.  However, it was the only story in the Far East that night.  Markets there were down 2% as European markets opened for business yesterday morning. Europe fell c 3% yesterday and opened a further 1% down this morning, though they’re rising to new lower levels of resistance.

At Armstrong Davis, we think in terms of the S&P 500 as we believe there is such a high correlation between various continental markets that to focus on the US market will tell us pretty well what’s happening and what is likely to happen.

In mid October we recommended to many of our clients to reduce their exposure to equities by around 5-10%, on a bespoke basis.  This was when the S&P was at c 1080.  Since then (it’s only been a few weeks but it can feel longer) the markets grinded higher and we kept hearing bullish ‘news’ about how well the economy is doing etc etc.  The S&P rose to c 1110, only c3% higher.

As of this morning, the Futures market is indicating the S&P at … 1080!  We recommended reductions in exposure as we believed that the markets were due a pullback, at least.  We have been saying these last few weeks (to anyone who’s been asking) that we have felt the market needed a breather – a correction of 10-20%.

See the chart of the  S&P 500 (1 year - focussing on year to Nov 09).  Note how it has risen and fallen like a series of arches almost monthly and regularly since August.  Note also how it keeps going back to the 50 day moving average (red line).  Also, note how the volume of transactions fell significantly during the last arch rise.  Also as we have see gold soar, gold stocks have not kept pace.  These have been warning signs.  There have been other warning signs such as small and mid caps not rising while large caps have done so.  And of course the media only talks about the FTSE or the Dow – just a mere 30 listed companies apparently to tell us what is going on in the huge world of the markets of thousands and thousands of stocks and other investment assets!

Our belief has been that the S&P will in fact want to ‘say hello’ to the 200 day moving average line which would bring it back to c 1000 - a fall of c 10%.  In fact, if the trend reversed and it fell normally then the 200 day could well move down to c 950 - a fall of c 14% for the S&P.  As ever, markets never stop dead on trend lines.  They invariably go way above and come back down or go way below and come back up.  Well, the change in trend that we wondered about may well be upon us, starting from Dubai.


‘The Paris of the Middle East’. Where you could sell up here, move there and rub shoulders with TV and football stars, whilst driving your convertible sports car in blazing sunshine.  Dubai, with ‘The World’ property development. Dubai, with the tallest building in the world. ‘You can’t go wrong in Dubai…’ (Where have we heard that before…?)

Well, I read that things are so bad and debts are so massive that they now confiscate your passport at the airport if you have debts and you try to leave.  They have debtors’ prisons.

Hype is an amazing thing.  It, like markets, can soar (and depression can fall) far longer than fundamentals indicate.  We try to avoid hype and depression.  We try to look beyond the face value.

Medium term outlook

Further out, we have come to the view that there is more upside to this cyclical rally which started in March of this year, within the secular bear market.  This started in 2000 and was temporarily halted (for years) by our self-serving politicians and central banks.  Clients will remember that way back in October/November of last year we forecasted a big rally and in March we said upside of 40-80% (when there was still huge depression in the media).  Well, we’ve seen c 60% to today and we believe the outturn will be at the upper level, at least, of our original forecast.  The market may rise again through the New Year into the Spring of 2010.  If that happens, then we’ll see where we are at that point.

If we see a considerable pull back, as we expect by the end of this fall, we are looking to re-enter markets in various ways according to bespoke portfolio requirements.  This fall could be abrupt, ending even next week.  We will contact you with recommendations and we hope you will respond promptly that we can make the alterations for you.  Should we not hear from you, promptly, we’ll call as ever to ensure you received our message.

As to bullish news that I mentioned above.  All we heard about during the last few months is rising stock markets and house prices.  What about unemployment?  Low numbers of houses actually transacted?  Estate agencies going bust by the hundreds?  Future rising taxes?  Future cuts in public spending?  Higher and higher deposits needed for mortgages?  Bail outs of banks (covert and open)?  National chains of retailers falling like nine pins – Woolworths, Blacks Leisure, Threshers Wine, Borders?  And that’s BEFORE Christmas!  Thousands and thousands of job losses in manufacturing and services – BAE Systems, Vauxhall, Lloyds Banking Group etc etc

Green shoots?  Recovery?

The only recovery has been in the stock market.  Not in the real world.  And the real world will eventually determine the stock market.

What happens when the governments turn off the taps?  We will be left with depression.

Long term markets may well fall below the March lows inexorably like the 1930s or they may fall down and not touch the March lows.  The latter will be due to currency decimation and rampant inflation.  Though markets will rise in that case, they are unlikely to rise as fast as the inflation or commodities.  That’s for the longer term.


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