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Dancing bear

Purchasing and supply managers are responsible for ensuring the businesses in which they work are adequately tooled up for expected conditions. When they start to rein back in anticipation of tougher conditions ahead, then it is not unreasonable to expect economic contraction. The non-manufacturing ISM Index result suggested the US economy had hit the buffers.

It was all enough to unsettle investors and even a 25 basis point cut in interest rates by the Bank of England could not stem the selling pressure that began to build.

The bearish tone has come about despite a resurgence of bid activity, such as Microsoft bidding for Yahoo and BHP Billiton aiming to add Rio Tinto. Indeed, while evidence mounts of slowing economic growth around the world, there is little real evidence of recession.

Talking to a printer in the City of London the other day, I learned that despite expecting a slowing of business activity (his firm’s clients are typically corporate finance departments of investment banks, lawyers and chartered surveyors) the workflow was holding up well. Even estate agents are not pointing to gloom and doom, generally finding that a slowing in sales volumes has been more than offset by interest in the rental market.

The stockmarket, though, is worried that worse lies around the corner. It is not just the credit crunch that weighs on their minds. Only 14.6 per cent in the survey cited turmoil in financial markets as a contributory factor because it affected their ability to raise finance. Interestingly, the most recent manu-facturing ISM survey conveyed a different message. Perhaps because the weakness of the dollar has helped this segment of the US economy, the index there suggests growth of around 2 per cent. Perhaps investors are taking the pulse of events at too frequent intervals and over-reacting accordingly.

This is not to say the bears are wrong but we have no way of assessing how the various negative scenarios will play out or whether a more positive nature will achieve ascendancy.

The debt crisis in the Far East in the late 1990s was resolved relatively quickly but consumers were less involved and the numbers much less significant.

Central bankers’ approach has been far from coordinated. Last week saw rates down a quarter point in London and unchanged in Europe despite a 125bps cut in the States.

The bulls and bears are evenly balanced. Investors need to be nimble or take a long holiday, away from a market subject to the vicissitudes of contradictory news.

Brian Tora (brian.tora@centaur.co.uk) is principal of The Tora Partnership

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