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Cycle paths

Traditionally, now would be the time to proffer a review of 2008 but, to be honest, I am not sure I have the strength. Stockmarkets, house prices, sterling – everything most of us are quite happy to see tick gently ever upwards – have in fact plunged while seemingly only food prices and other bad stuff have headed in the opposite direction.

And unemployment, of course, with now very much not being the season of goodwill to anyone at all. Supposedly, even the country’s burglars are facing an economic downturn, with the good, good people at AA Insurance predicting a drop in break-ins this Christmas as Brits look to save money by staying at home and spending less on presents – something I would dwell on further if it did not feel like tempting fate.

So maybe I should instead look forward to 2009 – at least in the sense of making a prediction or two rather than trembling in warm anticipation of the pleasures it might bring.

After all, it is going to be even more horrid than 2008, isn’t it? Well, in economic terms, you will not get much of an argument from me but, from an investment perspective, I am willing to be a little more upbeat.

You will know I was right if you see investment groups pushing corporate bonds and even your local corner shop launching an absolute return fund because that is as good a “buy” signal as any – for equities, of course. Don’t get me wrong, investment groups are full of wonderful and clever people but they rarely seem able to square the fact that they are working with two cycles – investment and marketing – and the latter is always a year or two behind the former.

So do I have any evidence to back up such an outrageous assertion? Aside, of course, from reminding you of the legendary Isa campaigns of the last decade that reached their peak with the great tech push of late 1999 and early 2000?

My first witness for the defence is Bob Doll, chief investment officer for global equities at BlackRock, who has suggested that equity markets are currently “in the midst of a bottoming process”.

He expects to see yet more monetary and fiscal responses as central banks and policymakers seek other ways to unblock the financial system and while he does warn that such efforts will take time, he sees narrowing credit spreads as the key signal that “the financial system is starting to return to normal and higher-risk assets are engaging in a renewed uptrend”.

He goes on to argue: “Stocks sank below their October 10 lows in late November but, importantly, volatility measures were lower then, which adds support to our view that prices are finding a floor. We are now two months into this process and believe that we have between two and four months to go, meaning we should expect high levels of volatility to continue but that the longer-term outlook is brighter.”

That prospect of further monetary and fiscal responses was neatly encapsulated at the recent Investment Update seminars by Algy Smith-Maxwell, one of Jupiter’s trio of multi-manager colossi, when he quoted Winston Churchill’s observation that “The United States invariably does the right thing – after having exhausted every other alternative.”

Advancing a similarly upbeat argument to my own, he – that would be Smith-Maxwell, not Churchill – went on to outline the various stages of the investor psychology cycle, which progresses through contempt, doubt, suspicion, caution, confidence, enthusiasm, conviction, greed, indifference, dismissal, denial, fear, panic, capitulation and back to contempt.

“Shares are the only asset in the world people buy less of as the price falls,” noted Smith-Maxwell, before suggesting that we currently stand somewhere between fear and panic. All I would add is, if we do not, we need to come up with some new abstract nouns for the cycle – and be searching for them not in a thesaurus but the Old Testament.

It goes without saying that I do plan on adhering to one tradition that goes hand in hand with columnists making predictions about the year ahead – if I’m wrong, you certainly won’t find me owning up to the fact in 12 months’ time. Merry Christmas all and here’s wishing you a less horrid New Year than you fear.

Julian Marr is editorial director of


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