It is difficult to write this just now without going over old ground, but sometimes you need to take a step back and look at things rationally. I shall try and do this by looking at matters making headlines just now.




The Bradford and Bingley, which used to be a building society before demutualising in December 2000, has two bowler hats as its logo. I used to think this was to symbolise the city gent, but I have now realised that it was because Laurel and Hardy were in charge. There can be no other explanation as to why as a bank it allowed over 50% of its total mortgage lending to be via buy-to-let. There is now the real prospect of the shares that members were so keen to get eight years ago being worthless.


Also, three weeks ago the first Northern Rock repossession made the headlines. The couple involved had an outstanding loan of £300,000. He was a taxi driver and she worked part time earning £100 per week. The couple said that when they applied Northern Rock weren't even interested in their earnings only the value of the property. I fear this will be the first of many such stories, particularly as the "Rock" was known to lend up to 125% of property values!! Whatever happened to the concept of affordability?


In general it appears that certain banks have been guilty of greater stupidity than even I suspected, and it will take time for this to be unwound, but this is not the first time this has happened (it seems to occur in a twenty year cycle) and they will recover, but patience is required.




A year ago today crude oil was $75 a barrel. Today it is nearly double that. What has happened in the intervening twelve months to drive it to such high levels?


Well demand hasn't doubled even though it has increased. What we have seen is a greatly increased level of speculation, that has had the effect of creating a major disincentive to oil producing nations to increase production. Why would you, if you knew that this would only serve to decrease the price of your product? However, OPEC is fully aware that there is a fine line between creating huge profits and tipping your customer, i.e. the West, into recession, so do not be surprised if we saw an unexpected fall in the future. There is also no doubt that the current oil price has been the catalyst needed for science to genuinely look into alternatives to oil, and BMW, General Motors to name but two, are well down the line in creating a feasible Hydrogen powered engine. No doubt, at the same time the Treasury is working out how they can tax the most abundant element in the Universe...



In my opinion we are starting to see mass hysteria with regard to share prices. Volatility is through the roof, company reports are pored over for proof of impending meltdown, and any good news is ignored, or deemed an aberration. Now it is fair to say that when markets are charging ahead any bad news is equally ignored by the market, but the difference between bad and good times is the patient investor can take advantage of the negativity at times like these. We have mentioned previously that acting contrary to the herd is the key to being a successful investor, and now is a classic example. It is however not an easy skill, and it certainly isn't easy to keep your head when asset prices are falling as they are now, and you see how much valuations are down.


The excellent returns that stockmarkets have achieved over the years do come at a price, and that is they do not rise in a nice constant straight line. However, equity returns have comfortably beaten other asset classes in the last hundred years, and there is no reason to believe this will not continue. A pleasant thought to keep in mind this summer.


Steve Forbes


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.