Actually, it wasn’t half bad. Of course the recession has made a difference. Naturally the fall in the price of oil has decimated profits for the integrated majors. But unexpected and unpleasant surprises were in short supply – thank heavens. The overall result was to bolster the resolve of the bulls and allow markets to continue their recovery.
In some parts of the world the bounce has been extraordinary. Some emerging markets have doubled since the depths were plumbed in March. The extent of government action in trying to stave off the worst effects of the economic downturn has clearly swayed investors, even if the real results are far from clear. We know the slump was worse than feared and that the way ahead is far from clear, but we don’t care.
Whether parts of the investing community are simply burying their heads in the sand is debatable. Some of us have clearly got it wrong. The argument over how the market should be priced is polarising between those who felt shares had reached bargain basement prices and bought and the bears who anticipated a prolonged period of negative or sub-trend growth.
Both could, of course, be right. Markets do over-react, so the levels reached in the wake of the Lehman Brothers collapse were probably over-pessimistic, particularly given the extent of global co-operation to prevent a thirties style depression reasserting itself. But these very measures need to be paid for, so the best the developed world can hope for is a period of higher taxation and subdued consumer expenditure as we adjust to the new world order.
This is where the bulls take comfort. Not every part of the world has been as affected by the shrinkage of credit as have the West. Emerging nations will feel the pinch as western consumers tighten their belts, but they have the aspirant consumers willing to take up the slack. It will take time, of course, but those countries with robust finances are even now diverting resources to infrastructure expenditure, boosting economic performance as a result.
While I find it hard to believe that profit taking will not set in after such a swift and extensive recovery, the bulls have another argument to back their stance. The longer the market holds on to its gains, the greater the pressure on those that have stood on the sidelines to commit their cash. Half year meetings with trustees will have been uncomfortable for some managers. They will not want a re-run in three months time.
For me, as for many in this game for more than a few years, many of our long held beliefs have been overturned in recent months. Dividends can fall. Equities need not deliver returns better than bonds over a reasonable period. But my long term faith is unshaken – which is why I wonder why I am as cautious as I am just now. Perhaps I’ll discover why sooner than I think.