Summer Fun
08/10/2005
Interest rates lower in the UK and higher in the US. The UK economy does feel closer to the US than Europe and for good reason - we really should have monetary union with the Yanks. I am sure they would like to have the Pound!
More seriously in the past three months I have been delighted at the robust share price growth in the largest 350 companies - it means ample opportunities. Albeit, seven of the biggest 8 movers are oil and gas companies like Cairn, Burren, Dana. Catlin Group stands out as an insurance player in the top 10 big movers of the past 3 months.
But come on, so outside oil and gas which sectors are showing some action? Babcock in Business Support, BPB in Building& Construction, Rolls Royce in Aerospace, Stanley Leisure in Gambling.
So what is the shape of summer? Well UK GDP still needs nurturing and is not running away - that is good. Oil prices are the biggest cap - but then again caps are good. Sectors running away are Oil, Aerospace, Automobiles, IT, General Industrials.
Consumer spending is a key issue still. Cheap money is still out there, but the whole story about debt, remortgaging, consumption seems to have fizzled a little.
I am in New York and Chicago next week and look forward to getting another handle on the US economy. Last time from visiting stores the impression I got was not one of mass consumer spending.
So where is the money coming from? What will drive growth. We have to watch corporate investments and earnings - especially those tapping into foreign markets. Some of the worst performers over the past three months of UK stocks are with no or poor overseas exposure and reliant on the UK alone eg Morrisons, Kingfisher, Evolution Group, Cattles.
I want to leave you with this little example about the way the markets sometimes throw up oddities. It is something Riskmetrics found:
Although the U.S. equities markets' rally has been quite impressive during the '90s, a glance at market history illustrates the need for careful risk management.
Imagine it's January 2, 1929 and you have $10,000 in the local bank. Considering the recent strength of the stock market and the fact that your friends are making a killing in the stocks, you decide to invest your cash in a Dow tracking fund rather than a new car. After all, with all the money you'll be making, you can buy two new cars in a few months. On September 3, 1929 your little nest egg has grown to $12,417. Only a few more months and you can reap the benefits of your investment. October brings what will be known as Black Thursday, and the nest egg shrinks to $7,495. As you close the newspaper's business section, you sigh and exclaim "The market will come back. I didn't really need a new car. I should be investing for my retirement anyway." But on your way home from work on a hot July summer day in 1932, your car breaks down and cannot be repaired. No need to worry, you can cash in your investment and buy that car.
Think again. Your investment is now worth $1,342. In three and a half years, your $10,000 has dwindled $8,658 down to a total of $1,342, a loss of more than 86%.
Value-Growth
On my value growth criteria which are based on stocks meeting revenue and profit growth and good value based on criteria such as price earnings growth, the following names come up. Remember they are for a 6 month outlook: Rensburg Sheppards, Touchstone, Comino, AstraZeneca, Vedanta, Hill and Smith.
Remember I am targeting about 20-20% with the value growth criteria. Last year it produced 33% return. On my momentum value indicator I have: Melrose, Numis, United Clearing, Michael Page, Regus.
Crazy Small Stock
These are high risk volatile stocks which could move sharply higher or move sharply lower in my view, but will almost certainly not stand still. Names on the radar include: Bisichi, MS International, Universal Salvage.
Also, if you would like a free multi-media CDROM on 'Investing Better', which covers spreadbetting, CFD trading and momentum indicators like the MACD, posted to you then drop me an email with your postal address to alpesh@tradermind.com.
Spreadbetters
Spreadbetters and futures traders often look at hard and soft commodities. Here's my quick take on the action for the week ahead:
- Oil: Higher
- Copper: Down
- Gold: Sideways to lower
- £/$: Higher
- Dow: Mixed
- FTSE 100: Higher
- Soyabean Oil: Down
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