Alan Steel said, "After the continuing nervousness in the stockmarkets, I thought it'd be helpful to give you some perspective on where we really are and what should be happening next."
Originally I'd planned to make this newsletter a bit different. Perhaps to talk about pensions for a change. Or give you some of my thoughts as to why I think property is now too late in the cycle. Or discuss the latest about-turn from Gordon Brown on pensions flexibility.
But after the continuing nervousness in the stockmarkets which, like the Scottish Summer this year, started in May and is still going on, I thought it'd be more helpful to give you some perspective on where we really are and what should be happening next.
Some of our clients will have heard of Liontrust. Some may recall that I go on about the research we get from the US from Ned Davis Research. Most of you will have heard of Anthony Bolton who has run the Fidelity Special Situations Fund and the Investment Trust equivalent since 1979. Today he manages over £9 billion.
Well, in the last 14 days, culminating in a one-to-one breakfast with Anthony Bolton on Friday, I've had the opportunity to get closer to the thoughts of Liontrust's Jeremy Lang, Ned Davis chief global strategist, Tim Hayes, and of course the great man, Anthony Bolton.
I'm sure you would be interested in their views. Jeremy Lang has now completed 10 years running his flagship fund with Liontrust. To mark the tenth anniversary which took place in April, they've hard copied all his commentaries over the last ten years. One of the entries says, "The outlook for the stockmarket remains depressed. Despite the benign inflation outlook, gilts and equities are unlikely to make significant headway, whilst the political and economic outlook remains worrying."
For those who think that must have been written in April 2006, the surprise is it was written exactly 10 years before that, in April 1996. In his entry for April this year he says, " Life is getting better, rather than stopped getting worse. Corporate revenues are accelerating and going faster than expected. Good, old fashioned growth companies, in other words. It hasn't felt this good since 1996."
As I speed towards the Bus Pass, fortunately I'm still blessed with a decent memory. I remember 1996 and how bad it was. Or, rather, how bad it was supposed to be, and how nothing was ever going to get better. Alan Greenspan was highly criticised at the time - he was the FED chairman - and he caused all sorts of panic with his view that stockmarket levels were far too high.
Of course, what happened next benefited investors but not speculators. Those who were running for the hills got it badly wrong and the right thing to do was to sit tight. Ned Davis Research are contrarians. They specialise in tracking sentiment because they've found, by studying results over 100 years, smart investors get it right while dumb investors get it wrong.
Tim Hayes, their Global Chief Strategist, was in Edinburgh recently and I caught up with him over dinner. His view was, over the next three months, we might still be in for some uncertainty, but agreed there was enormous value in large cap growth stocks, especially in the US. Putting that into simple terms, he believed there was really good value in the stockmarkets, taking a three to four year view, and that's what investing's about.
It was also pleasing, while having breakfast with Anthony Bolton, who's been reported recently as being negative, to hear Tim's view confirmed. He agreed he doesn't spend an awful lot of time looking at economic circumstances. But, what he does is keep abreast of sentiment. That's why he was cautious in March and April. His view is we may still have a few months of bumpiness to run but reckons shortly a new bull phase will start, with surprises on the upside.
For those who think the recent conflict with Israel/Lebanon is bad news for stockmarkets, the latest evidence from Ned Davis suggests otherwise. They've tracked 40 crises which affected world stockmarkets since the outbreak of World War 1. Typically, stockmarkets fall immediately by as much as 3% or 4% when a crisis occurs. But the good news is, the average increase 4 months later is 9.2%, and 6 months later 16.9%. Don't ask me why - but that's what's happened.
Of course the big bogey man right now is Oil. The price has gone up 7 times since 1999. But the impact's been a lot less than the price increases in the 1970s or 1980s. Twenty odd years ago, petrol was over 7% of consumer spending, and it's about half that rate today. Everybody's worried about the USA economy. Funnily enough, as a slice of US GDP, petrol has fallen by a third to only 3% of consumer spending.
It's also the case Oil is not on a record ever high! In real terms, in 2006 US Dollars, it would have to be over 104 US Dollars a Barrel to be equivalent to the highest price ever recorded - believe it or not - in 1865!
The last word should be with Mike Williams of Genesis in New York who supplies us with wonderful insights. He said if you're an investor, don't worry about this - just go and lie on a beach. And I think I'll take along some red wine!
This letter is the personal view of Alan Steel. Please check the appropriateness to your individual position with your adviser before taking or refraining from any action.