Mark Lamb | Wednesday, 16 September 2009

Silly September

Weekly international investment round up to 15th September 2009.

Thank you to the reader who recently sent me an email helping explain our new post credit crunch world. It goes; in traditional capitalism you have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income. However, with the modern style ‘American Corporation’, you have two cows. You sell one, and force the other to produce the milk of four cows. Later, you hire an expensive consultant to analyse why the cow has dropped dead. Under the quantitative eased ‘Bureaucratic Governmental’ regime you also have 2 cows. The State nationalises them both, contracts to buy their milk at inflated prices then throws it away while in the recession hit ‘British Corporation’ you have two cows but both of them are mad! Finally, under the Lehman Brothers Bank style ‘Venture Capitalism’, you have two cows. You sell three of them to your publicly listed company using letters of credit then execute a debt/equity swap through a hedge fund so that you get four cows back, with a tax exemption for a fifth. Their milk rights are transferred via an intermediary to a secret company owned by the majority shareholder who then sells the rights to all six cows back to your listed company. The annual report says the company owns seven cows, with an option to buy an eighth. No balance sheet is provided with the release. You then hope the public buys your bull!
September is traditionally a silly investment month; in fact it has a well-deserved reputation for being the worst month of the year. For example, on average America’s leading index, the Dow Jones, has lost 1.13% each September since its formation in 1896 against an average increase of 0.75% for the other months. The pattern remains remarkably consistent, throughout the Dow’s long history September is only month of the year which falls more than it rises.
While there is no one clear reason why September is so bad maybe it is in-part due to the seasonal slowdown of money flowing into the markets and thin trading means there is less new money pushing up prices. Also, particularly in America, many investment funds have October as their fiscal year-end and as such they may consider selling losing positions from mid-September onwards.
However, September could yet prove to be a pivotal month for Europe. Following the European Central Banks decision to leave its key interest rate unchanged from its record low of 1% earlier in the month it has just revised its forecasts for the euro region and now predicts an expansion of 0.2% next year compared to its previous pessimistic forecast of minus 0.3%. Furthermore, it estimates that the eurozone will only contract by 4.1% this year, an improvement of 0.5% over its previous figures. Sitting within Europe but outside the eurozone Poland’s economy is showing signs of real strength and is set to be the only European Union economy to grow this year, attracting investor’s attention. As growth gradually turns positive talk of a sustained bull-run may not be so silly.

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