Spent this morning at the Culloden Hotel attending a trio of investment seminars hosted by Schroders, JP Morgan and Blackrock. Some of the content would have lulled even my baby daughter to sleep but there was some good stuff in there. Vincent Devlin, who runs Blackrock’s Continental European and European Absolute Alpha funds, told us that earlier in the year the various investment houses had been asked by Brussels how they would solve the European problem – effectively a massive brainstorming exercise. Maybe some comfort can be had knowing that Europe’s problems haven’t taken everyone by surprise. Although for sure some elements have been worse than anticipated and Papandreou’s call for a Greek referendum shocked even his own cabinet..
Low economic growth in Europe is forecast and a political solution is required. However it’s not all bad news and from an equity investment standpoint it looks as though certain companies have historically low valuations and some attractive opportunities exist for investment.
Schroders had a fixed income specialist present and he quoted Mervyn King saying that “…this is the most severe financial crisis at least since the 1930s, if not ever…” Not known for his market commentary or emotion, when the Bank Of England’s Governor says something like this it’s wise to take note. A big issue for mahy European member states is the need to reduce the debt to GDP ratio. Did you know that to reduce the UK debt to GDP ratio it would require a sum equivalent to that saved by closing the entire NHS for one year! Certainly government bonds are no longer regarded as a safe haven and are a less effective hedge for credit long positions.
JP Morgan presented on commodities and natural resources – after a couple of hours I was glazing over a bit but I sat upright when I heard that Anglo American (one of the world’s largest mining and natural resource group) recently secured a 4 year deal for truck tyres at $40,000 per tyre. The current spot price for one of these tyres is $120,000. All of a sudden my trips to Coleraine’s Kwik Fit seem very insignificant by comparison…
JP Morgan believe that sentiment, rather than the fundamentals, are driving prices of resources such as iron ore and copper and while their fund is down 33% this year to date (ouch!) they foresee better times ahead (!). On a side note, if Gordon Brown were to turn the clock back on his big gold sell off between 1999 and 2002 he could raise an additional $17 billion at today’s gold price… Gold, one of the last traditional ‘safe havens’ remaining is the next potential bubble ready for bursting. As a famous investor once said, when the bell boy in the hotel gave him a stock tip he knew it was time to get out and when even grandparents are buying grandchildren gold coins it doesn’t bode well…
And as for Greece… I’ll be watching the news with interest as this story unfolds. (Although my mother says that the climax of Downton Abbey is much more exciting than what takes place in the Aegean)
By David Gibson