Alan Steel says, "Hang on to your hats!"
"Alas we've seen it all before - same old fears - same old crimes - haven't changed since Ancient Times"
Mark Knopfler - Iron Hand - Dire Straits
Because I'm part of the generation who remembers when wireless meant a big box producing weird whistling noises on the shortwave band I still buy CDs. Tonight my son is teaching me how to download music on the ipod my wife bought me for Christmas. No, not last Christmas, the one before!
One of the last CDs I bought features two of my big favourites - Mark Knopfler and Emmy-Lou Harris. Emmy-Lou Harris used to sing with Country Legend Gram Parsons. Anybody remember him? Emmy-Lou was born the same year as me - 1947 - and I still own her early albums. They call them vinyl these days. I thought that was linoleum!
Knopfler was the guiding light behind rock band Dire Straits. When they first appeared on the scene, they were such a secret they flopped. That's hard to believe these days. But it's true. Then at least a year afterwards, thanks to some long forgotten disc jockey, they got airplay and it led to their first successful album (in vinyl) being released and the rest is history.
I thought it would be a useful theme to think about in this Letter from Linlithgow, to double it up with secrets, and question if we really are in dire straits.
There's quite a few secrets. Secrets that don't make the headlines. Did you know, for example, it's been reported the hole in the ozone layer is shrinking? Did you know 2006 was predicted by experts to have a hurricane season worse than last year? How many hurricanes were there last year? Eight? It was something like that wasn't it? And here we are, almost in October and not one.
Did anybody else see the news that a renowned World meteorology expert puts global warming down to unusual solar sun spot activity that occurs every two or three hundred years?
I bet one secret you would like to know about is that the World's biggest Financial Institutions, since early this Summer have been gobbling up shares in the large cap growth sector.
Meanwhile the dire straits economic brigade continue their pessimism. Why don't they look back at history? Why don't they search into their memories?
Think of August 1982. You might remember there were predicted economic collapses under the weight of petrol in the US (about 50p a gallon), 15% inflation, 16.5% mortgages, roaring budget deficits, and no growth. The predictions were all about recession. Did anybody see the 18 year bull market coming?
Think of October 19th 1987. What comes to mind? The Dow Jones in the US went 572 points straight down. It fell to 1722 (have you looked at it lately - heading for 12000). Wonder if anybody realised the final 10 minutes of that day in October was the last time you got the chance to buy equities cheap.
Or 1991? House prices were collapsing - Banks going bust - Executives getting arrested - debts soaring. Who would have thought the Tech world was just about to deliver its first wave?
What about 1995 and 1996? Dire straits again? Recession fears - inflation worries - the US Fed tightening - consumer in trouble - petrol rises - Middle East turmoil - and apparently OPEC was toothless. What about China? As Mike Williams of Genesis (independent research) points out, China was a dud back then. Oh really? Anybody see the second wave of tech growth coming?
How about the now infamous year 2000? Do you remember everything was good with the World? Experts were pointing to blue skies forever. Everybody prayed for corrections, so they could buy Tech shares cheaper. They ignored bad news. Every investor was a winner. And always would be. Anybody see the Tech burst coming? Anybody see property, energy, materials, and the oil boom coming?
And here we are again - fretting more than ever. Aye we've seen it all before - same old fears, same old crimes.
I've just come back from a meeting in London with Guy de Blonay the excellent fund manager of New Star Global Financials. Any of our clients who have been in financials on our recommendations over the last 2 or 3 years obviously have done really well.
I've got news for you. He thinks it's going to get better. He believes over the next 3-6 months private investors are going to start realising what institutional investors already have. Growth is going to continue and he sees a dramatic uprating of equities. That's why we think you should be turning any cash over the next 4-5 weeks into investments. Hang onto your hats!
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.