IT'S GOOD NEWS WEEK

 

Most of you will never have heard of Hedgehopper's Anonymous. I doubt they are even famous in their own homes. However this band had a hit in 1965 with a song with the above title. It was written by Jonathan King, and even though it was quite a catchy ditty, listening to the lyrics quickly indicated that the title was an ironic reference to the travails of the world at the time.

 

Over forty years later we are still subjected to this despondency from the media, only now we can access it 24 hours a day. However if you look carefully enough, you can still find some genuinely good news.

 

In the 1980's we started to get bombarded with stories about the earth's ozone layer, and the fact that a hole had developed over the Antarctic. The doomsayers predicted every squirt of deodorant was going to help turn the Earth into a barren wasteland and future generations could look forward to an instant sunburn with a five minute walk to the shops (even in Scotland!). Recently, however, the ozone layer has not been a huge topic in the news, with the emphasis having moved on to global warming in more general terms. Could the reason be that scientists have discovered that the hole in the ozone layer is shrinking and is likely to have completely healed in the next 50 years? I would have thought that this would have been headline news, but if it was I wasn't watching.

 

Bird flu is something we have mentioned before in these missives. Last year predictions were made of 100's of thousands of humans dying of this disease in the UK alone, but journalists couldn't even find a Budgie with a sneeze. There was of course the sighting of a dead swan in Fife which was enough to provoke a news alert and even resulted in the area being cordoned off from the public. As a resident of Fife to me the biggest surprise was that one of the local "entrepreneurs" hadn't already deep fried the swan in batter and sold it as a jumbo chicken supper before the police were called. But alas for the news agencies it was discovered that the swan had actually died in the waters of northern Europe and its carcass had simply drifted over to the UK. No, the fact that the disease had been contained and had affected a handful of people globally is simply not news worthy, although I have a feeling that this scare story will start to reappear in the coming months.

 

The situation in the financial markets is even more confusing. At least with the above stories we know that a hole in the ozone layer and catching a strain of a virulent disease are bad, but when it comes to the reporting of economic matters the waters are far muddier. One minute deflation is a problem, the next, inflation will bring the western world to a halt. Now it is the fall in the value of the US housing market that is of huge concern, but a year ago it was the fact that the US housing market was rising rapidly that caused economists to get out their "end of the world is nigh" placards.

Sometimes it makes sense to take a step back from all this confusion and look for a more reliable indicator of future investment returns. One of the most reliable indicators we have found is the investor sentiment index. This monitors the confidence of ordinary investors in the US with regard to the stockmarket. It is a contrarians dream. History has shown that the more confident the general public are the more likely the market will fall, and when investors are at their most pessimistic markets tend to rise the fastest. Currently the index is indicating almost record pessimism which to our mind is a very positive sign for global stockmarkets.

 

So the next time you pick up the financial pages take heart from all the bad news. It's when they are full of good news that you have to worry!

 

Steve Forbes

 

 

Steve
Author
Steve Forbes
Managing Director
Alan Steel Asset Management Ltd is authorised and regulated by the Financial Conduct Authority

The Financial Conduct Authority does not regulate tax advice

This letter is the personal view of Steve Forbes. Please check the appropriateness to your individual position with your adviser before taking or refraining from any action.