INFORMING YOU - SEPTEMBER 2012
Well, it appears that Summer is over, although I must have blinked as I missed it. The weather forecasters are reiterating how difficult it is to make any sort of accurate prediction when it comes to the longer term, which is just as well as I distinctly remember them forecasting a better than average July and August.
To be fair I don't envy them their job. Even though the latest satellite technology can instantly show where storms are brewing in the mid Atlantic, there is no way of accurately predicting until they are virtually upon us exactly when they will hit, whether they will develop into something more substantial, or if they will create any long term damage. Also some storm fronts appear threatening but actually peter out before hitting land.
It is also equally difficult to predict which, if any, economic and political storms brewing in the distance will develop and create problems. There is no doubt that there are a few events on the horizon that could have an impact on global markets in the coming months, so perhaps rather foolhardily (and hopefully without doing a Michael Fish!) I will make my own long term prediction for the three that appear most threatening.
Possible Storm Iran - The increase in military manoeuvres by Israel in the Arabian Gulf may be a precursor to a strike on Iranian nuclear facilities. Will this happen? Who knows (apart from the Israelis and Americans). If it happens what will it do to the stockmarket? It is likely to be negative in the short term and possibly prolonged if it escalates.
Possible Storm Europe - An increase in social unrest in the Eurozone as increased austerity starts to bite. Will this happen? Very probably. Impact on markets? It may be the catalyst for real action in the Eurozone and lead to either greater political and economic union or to certain countries leaving the Euro. Either way this could well be beneficial to markets in the longer term, although in the short term it will create nervousness which means prices are likely to be volatile.
Possible Storm China - A sharp downturn in the growth of the Chinese economy. Will this happen? Some people feel that it already has and that the official figures produced by China are not a true reflection of their GDP. Impact? In certain sectors of the market, particularly commodities, any downturn in China's anticipated consumption is likely to lead to a significant fall in prices, but for other sectors, once the initial shock has passed, possibly not that great or long lasting.
When storm fronts collide in the atmosphere the effects are far greater and damage created more severe and it would be the same in the markets if any of the above scenarios occurred at the same time. Equally there is every chance that they may end up being no worse than a brief squall. But just as we prepare our homes for the Winter, it is no different with your finances which is why you should always have sufficient cash on hand to avoid having to take money out of the markets at inappropriate times, such as when storms hit, and diversity within your investments as not all areas are affected to the same extent.
Lastly for those looking to invest, just as it is better value to buy garden furniture and barbecues in the Autumn than the Spring, there is no better time than when economic clouds are grey and threatening to invest in the market as that is when things are cheapest.
Final thought - It is an indication that we are not in as bad shape economically as the media would have you believe when thousands of people spend the night queuing outside Apple stores to be among the first to get the new iPhone. In the poorer parts of the world people queue to get food, medicine and fresh water but in the developed world apparently a sizeable portion of the population believe being amongst the first to get a phone that is virtually no different from the one they already own is life changing. I must be getting old......
For and on behalf of Alan Steel Asset Management
Authorised and regulated by the Financial Services Authority