Weekly international investment round up to 18 August 2009
In the spring I put forward the opinion that the first real tentative signs of recovery in the world markets could be seen. In the height of summer where are we now?
At that time, sentiment within the herd was largely negative following the financial crisis which was causing widespread economic carnage with even the IMF warning the world economy would shrink between 0.50 per cent and 1 per cent in 2009, thus projecting the largest contraction since the Great Depression.
Even since April, we have had a few frosty mornings to contend with. General Motors, the one-time largest manufacture in the world, went bankrupt. Fraudster Bernard Madoff was sentenced to 150 years imprisonment for the largest financial swindle ever. Swine Flu became the fastest moving pandemic. Surely, if the seeds from which those initial green shoots had sprung weren’t indeed buried in fertile ground, wouldn’t these alone have killed them off?
Since my 21 April ‘Green Shoots’ article, we have seen some impressive growth. The FTSE 100, German DAX and the Dow Jones have increased by some 16 per cent apiece while the main markets of China and India have blossomed by 20 per cent and 34 per cent respectively.
Although things still remained very tough in the real world, I had also highlighted how the wider stock markets tend to act in advance like a kind of barometer and how the indications back then were showing us that the intense period of high pressure was lifting or at the very least easing.
Clearly the $1 trillion fertiliser applied by the IMF to the world economy in the shape of loans and guarantees together with various governments’ own Quantitative Easing efforts liberally applied throughout the months of March and April did indeed turn out to be the real stuff and not that cheap imitation variety which falls out of the backsides of male cows and so often scatted amongst the investment markets!
Following recent official confirmation the German and French economies have pulled out of recession and they have now been joined by both Hong Kong and Japan. Having correctly predicted some twelve months in advance the point at which America would enter their current recession, back in January I stated my firm belief that they would exit it by this year’s end. I still believe this to be true and whether we like it or not America is still ‘the big one’ and until this has happened, market confidence (that ingredient generally missed by those mathematical geniuses in charge of hedge funds), will not return.
So, the garden is now in full bloom and everything is rosy! Well, not quite. Although the excellent run of the last few months enjoyed by many major markets has been impressive soon there is likely to be a reality check. Like fake plastic flowers dotted around the garden such ‘official statistics’ may help make things look nice for a while but these could easily blow over. Until real sustainable growth prospects gained through stable jobs and sound economic policy can be established the short-term investment path may resemble more of a rockery than Kew Gardens.