Out of the tunnel
In a few days it will be Hallowe'en. Traditionally that's the time of year when folks dress up as witches and ghouls to scare the rest of us. But it doesn't have the same effect these days because television pundits scare us every day.
I spent the last few days talking to clients and friends with our Manhattan friend, Mike Williams, the lead manager of Richmond Core Fund, an outstanding US fund over the last 12 months. Mike tells us CNN now stands for CONSTANTLY NEGATIVE NEWS. Only last week my wife and I sat down watch BAD NEWS AT TEN on the BBC and it occurred to me the two Bs stand for BLINKERED and BIASED.
The top scare story that night was about an impending Cyber Attack which would be the worst thing imaginable. Presumably it would be a lot worse than their predictions of the World Economy collapsing and all our money disappearing. I was also reminded last week by my good friend Ian Cowie at the Daily Telegraph that he's been picking up stories from arch pessimists the Chinese stockmarket bubble was about to burst. He wondered what I thought.
Now I've got no idea what evidence these people have to predict a bubble bursting in China because we haven't seen a bubble developing yet. I know you might find that hard to believe but the Chinese stockmarket is still a fair bit below what it was at its high a couple of years back, and on any valuation basis you won't find any evidence of bubbles bursting or other scary monsters.
A year and a half ago in my Letter from Linlithgow called Tunnels and Light, I referred to the February issue in which I listed lots of indicators suggesting stockmarkets were likely to rise imminently. When I was quoted saying such things in the media I received nasty comments by people who anonymously suggested I should be locked up or burnt at the stake.
Between the issue on 24 February 2009 and the other two months later the S&P 500 Index had risen 27% and the Brazil stockmarket was up 29%. We passionately believed that marked the beginning of a new bull market and so it has proved to be. So far so good.
As doomsters on the telly continue the constant bad news with predictions that never come true, such as the double dip that's supposed to happen or the UK economy that's supposed to collapse, I thought it would be better to share what's actually happened since the terrible days early in 2009.
Clients may recognise some of the following funds dotted in their portfolios. Let's start with Robin Geffen's Neptune Russia and Greater Russia up 150%, Angus Tulloch's Global Emerging Market Fund up 140%, JPM Natural Resources up 120% and even Angus Tulloch's relatively cautious Asia Pacific Leaders Fund is up 100%. (All since late Feb 2009)
A core holding run by our friend Graham French, M&G Global Basics, is up 80% and an unsung hero, Harry Nimmo over at Standard Life who runs their UK Smaller Companies Fund and has done so for the last 17 years with tremendous results, has seen the unit price rise 100%.
In the meantime, a well known Gilt Index Tracker Fund highly popular with pessimists is up 10%. And even though long term interest rates are at alarmingly low levels and unlikely to fall much lower, billions of Pounds and US Dollars are piling into a sector perceived to be safe.
That's where we think the bubble will burst but it may take a bit of time. And it leads to questions. Why is it the herd always piles into the wrong sector or investment at the wrong time? Why is it media commentators, who are not qualified to give advice are not regulated by Financial Services regulators because investors think they are giving advice?
Why aren't they accountable for the erroneous advice they give? And why has Robert Peston still got a job?
The US is still the deepest part of the financial ocean. It is not sinking. It's rebuilding and restructuring and the gridlock that could be created in US Government circles as a consequence of US Elections soon, believe it or not is likely to be good news for equity investors.
We've been hoping for a little correction just to get a bit of commonsense back into expectations for equities and it may well still happen over the next couple of weeks. But we believe this is a time to embrace equities, not only in Emerging Markets and the Far East, but in other places including the UK and - surprise surprise - the US.
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.