Thursday 6th November, 2008

Message to our valued clients

You will all be aware from our communications, through your friends and colleagues and through the media of the present financial turmoil and I am sure you have seen many opinions as to what caused it and what to do

The following is a brief riposte of what happened and why along with our opinion of what will happen next – Our opinion has been gleaned from our experience, discussions with banks, fund managers, financial institutions and other industry savvy people, but it remains as stated, opinion only

To borrow an observation:

One of the reasons for this worldwide recession is that people have taken on more debt than they could afford to give themselves a better lifestyle.
What the recession is doing is shaking everything and everyone up, and restoring a natural order and balance. But that won’t happen if political parties set about subverting the sequence.

That is not a bad summary and there is plenty of blame to go around – for a small piece of solace you can see the below article to see the rich and famous that you are sharing the pain with:

http://apnews.myway.com/article/20081102/D9472T580.html

Of course in addition many of those people who took on large debts had a previous history of not repaying it and yet politicians leant on lenders and lenders were happy to go along with it and brokers were happy to sell it to the borrowers as they were not sharing in the risk

A question often asked is “Have we hit the bottom?”
We don’t think anyone can answer that question with authority but we are of the opinion if we haven’t, then we are close to it. Across all sectors liquid assets have been sold with the resulting USD being repatriated to the USA which has markedly strengthened the USD from 2 months ago

Can this go on?
Well, yes , but we don’t think it will – there appears to be a more reasoned approach to the market at present, albeit with bouts of turbulence, and the interbank lending rates have come down considerably in the last 2 weeks – the banks need to be comfortable lending to each other before we can go forward.

Should I sell my remaining assets?
A firm No on this one, we believe the bad news has been factored in and assets have in fact been oversold

So should I come back in the market then?
Our advice is not boots and all but yes it a good time to re-enter especially on a drip feed basis – we do not see meteoric rises in the next 12 months but do see good returns over the next 3-5 years.
By drip feeding you will be purchasing at very low levels which will only enhance your growth

Have the worldwide credit and economic problems worked their way through yet ?
No, probably not but as has always happened previously the stock markets should recover before the economy does and it would be nice to take advantage if that does indeed occur rather than miss the opportunity

What about other investment opportunities such as Commodities?
Another area that has been significantly oversold and we now have commodities such as wheat, corn and nickel that are fetching prices lower than it costs to produce them – we are advised by fund managers that they expect production to be pulled from present levels on this basis and with demand expected to still be healthy it is likely this area will see good rises but again perhaps volatility will remain in the short term.
OPEC, for example, cut production by 1.5 million barrels a day in an effort to stabilize the price of oil
With interest rates falling and bond returns reasonably weak we believe other investment areas hold good potential – leaving your money in the bank will see it overtaken by inflation at present so even though you will get a small actual interest return it will in fact be negative growth once you consider the rate of inflation is higher than the interest return

Will the stocks at the lowest prices gain the most?
Surprising the answer to that is probably not – the stronger performers will probably recover quicker – one of the reasons for this is that their share price and fundamentals will allow them to borrow money easier and more quickly as banks will have confidence in their ability to repay and prosper

Has the USA election settled things down?
Well, yes, in the sense that there is always uncertainty as to who will get in and how the markets will react to that successful candidate – it is now a known factor which prior to the election it was the unknown factor which will assist. There are a few challenges to overcome so it would be unrealistic to expect everything to suddenly turn rosy because of a new President but there is probably a goodwill period that may be beneficial

Please do not hesitate to contact us if you would like further information

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