Sprinkle your investments with a touch of seasoning
Written for The Scotsman
by Alan Steel
Saturday 6 November 2010
Let's get this straight. As you are only too aware of 100 reasons why the World economy is going down the pan, I am going to redress the balance a bit.
Forgive me if this has a US bias but the simple fact is, no matter what others tell you, what happens there affects all of us - yes including the Chinese. If US consumers throw in the towel the Chinese economic miracle is finito.
Let's begin with some good news pessimists don't want you to know. Remember the much publicised, much criticised TARP initiative in the US? That's when the US Government bailed out Banks and others including Motor Manufacturers. The figure banded around was over $700 billion of loans, which we were told was a waste of tax payers' money, because they'd have to wait 15 years to be repaid.
TARP stood for Troubled Assets Relief Programme. I bet you're surprised to learn that already all but $50 billion or so has been repaid. And it's reckoned the rest will be repaid by the end of the month, thanks to fresh share offerings from General Motors and AIG Asia.
Here's more good news. US unemployment is not 10%, its 5%. Why? Because economists have previously agreed full employment in the US is 5% because it contains those who can't or won't work at any time.
Talking of unemployment, the Kauffman Foundation has analysed US employment statistics for the last 33 years. Their numbers show business start-ups (new businesses to you and I) aren't just an important contributor to job growth, they're the only contributor. Without new businesses there would be no net job growth in the US since 1977. Large companies are net job destroyers, whereas new businesses in their first year add, in total, an average of 3 million jobs.
It's also worth remembering there was 10% unemployment in the US in 1982 when Bank base rate was 20% and inflation 15.5%. Today their Bank base is 0.25% and inflation only 1.1%. Take these record low borrowing costs, add the impact of phenomenal technological advances over the last 28 years, and there probably hasn't been a better or cheaper time for folks to start new businesses, there or here.
History also tells us the kicking Democrats got in the US mid-term elections is good for more balanced Economic and Government decisions from now on. And all this is good for stockmarkets. And what works in the US is good for the rest of us.
If you're still not convinced equities are a great buy right now, perhaps a study of Stockmarket Seasonal patterns may convince you. Stockmarket historians, including Robert Prechter, Ned Davis Research and Yale Hirsch of "The Stock Trader's Almanac" have since the mid 60s tracked Seasonal and Multi year Cycles of Stockmarket movement.
It's long been said Autumn and Winter months are more positive for stockmarkets than Summer months, and it's not just a Northern Hemisphere phenomenon. Many of you will have heard the "SELL IN MAY AND GO AWAY" mantra. Well it certainly has worked over the last 100 years.
In the US a study of stockmarket movements for the 50 years after 1950 shows those investors who only invested in the US stockmarket between 1 November and the following 30 April each year, outperformed those investors who invested only between 30 April and 1 November in the same year, over the entire period, by 24 times!
So there you have it. Stockmarkets are as cheap as Gilts were 10 years ago, and Winter is coming again. What are we waiting for?
for and on behalf of Alan Steel Asset Management
Authorised and regulated by the Financial Services Authority
Award Winning Investment Advisers