Notes And Quotes 22 May 2010

Who said? “While the crash took place only six months ago, I am convinced that we have now passed through the worst – and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us”. (Quoted by Howard Marks of Oaktree Capital, May 2010). No, it wasn’t Barrack Obama, or Gordon Brown. It was President Herbert Hoover in 1930. We know what happened next. A reminder that premature optimism can be dangerous.

“Consensus profit forecasts continue to paint what we regard as an unrealistic picture going forward. Yes perhaps 30% earnings growth might be achieved this year, but what about the 19% in 2011, the 12% in 2012 and the double-digit growth thereafter? Yet since 1990 the MSCI World index has seen 12 years of earnings growth and eight periods when profits fell!” Andrew Lapthorne, Equity Market Strategist at Soc Gen (17 May 2010). “High market valuations and the lack of cheap stocks out there suggest that while risk remains elevated, value is in poor supply”.  Translation: equity bargains are becoming rare, but the alternatives still mostly look worse.

Andrew Smithers, one of the few strategists to take a genuinely long run view on exchange rates, concludes in a recent report that, on the basis of purchasing power parity and relative growth rates, the dollar is likely to be the strongest of the G5 currencies (dollar, euro, pound and yen), that sterling and the euro will remain relatively weak and that the yen will weaken against the dollar and the remnimbi. (May 2010)

A hoary old chestnut which has lost none of its relevance or potency. Labour Governments, said Margaret Thatcher, “traditionally make a financial mess. They always run out of other people’s money”. (Sunday Times 9 May 2010). The last Labour Government, alas, has taken this trend to historical extremes.  Not surprising perhaps that its  vote remained most solid in those regions, notably Scotland and the North East, which have absorbed the biggest proportion of public expenditure.

“The budget should be balanced, the Treasury should be refilled. Public debt should be reduced. The arrogance of officialdom should be tempered and controlled.  The assistance to foreign lands should be curtailed lest Rome become bankrupt.  People must again learn to work, instead of living on public assistance.” Cicero 55 BC. (Thanks to Gerald Classey of Pritchard Wealth Management for this one).

Sanjeev Shah, the Fidelity fund manager charged with the thankless task of succeeding Anthony Bolton as manager of his UK funds, notes that markets have become oversold and he has been adding to his own holding in Fidelity Special Situations, according to Citywire.  Sanjeev has been quietly doing a good job with the fund and its sister investment trust Fidelity Special Values. Despite that the latter’s discount has widened to around 10%, a level it has not seen for some time, and on that basis I have added  some shares in the investment trust to my family accounts.