Despite Anthony Bolton's positive view on the UK, the the end of the bear market phase may not yet have arrived
The summer idyll continues. Bathed in dreamy sunshine, equity markets drift higher, while bond yields drift lower. UK house prices continue to float aloft and sterling softens like picnic butter. In such a benign environment, weakness feels like well-deserved indulgence. After what has been a torrid few months by any standards, investors are grabbing the opportunity to loosen up and chill out.
There is plenty of negative news around but its impact is muted, wrapped in phrases like 'disappointing' or 'below expectations'. Like the post-Iraq rally, which was supposed to light the touch paper of the new bull market, earnings, corporate activity and investment projections are the low-fat, 'lite' version of what was promised. Who is so churlish, when things seem to be going well, as to make an issue of missed targets and delayed delivery?
The squeeze is tightening very gently. In the lower echelons of City institutions, it is manifested in the loss of little things ' fresh flowers in reception, daily papers on each desk, parking subsidies, individual news screens and brewed coffee. Further up the pole, it has meant your PA has returned to the corporate pool and your bonus has plunged to five figures.
With assets and commissions declining steeply, investment banks are kicking so-called 'fixed' costs. Anything that squeaks or moves gets axed. Citigroup, Deutsche Bank, Baring Asset Management, Threadneedle and Amvescap have all cut staff in the past quarter. Gartmore is set to announce further cuts shortly. The brightest jump before they are pushed. Such retrenchments are a medium to long-term decision ' units will not be dissolved only to be reformed three months later.
Yet one of the most respected investment figures in the UK, Fidelity's Anthony Bolton, has just called the start of the next bull market. Bolton has an impressive track record and there is every reason to listen when he speaks so publicly. It is just that for every accurate prediction, even the investment greats can usually recall at least one huge dud. For Bolton, this may be his.
Why? Because outside the City hothouse, the UK economic outlook feels anything but steamy. Business confidence is dropping, high street business is falling and manufacturing orders are declining. Business failures are up by 6% on last year and the rate of collapse is quickening. The burst of corporate activity in the retail sector points to the uncertainty. Now, it may be that Square Mile investors are just a whole lot more canny, far sighted, courageous and determined than the rest of the country but, given recent history, it is unlikely.
Where economists see the economic outlook 'stabilising', companies at the sharp end see month-on-month deterioration. Serious, productive jobs are being replaced by lightweight apologies for employment. Full-time, salaried, pensioned posts are giving way to self employed, part time, ad hoc, even grey economy positions. The public sector, focused on monitoring, regulating and servicing is ballooning, while the private sector that generates wealth is shrinking.
Equity market gains so far have been among the safe and cheap medium-cap stocks. A certain amount of momentum has sustained the rallies and boosted a feel-better factor. In the investment sector, there are still big product launches. Grand strategies are released with great fanfare. But the industry remains on the back foot over split-capital trusts and with-profits funds. For now, there is some respite, but the problems will still be there after the summer.
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