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Into the fray

At least the US administration obtained its bailout fund. Whether this will be sufficient to calm investors’ collective nerves, only time will tell. Wall Street was suitably cautious in the trading immediately after the vote that delivered the required result took place.

And given the way in which the crisis developed over the weekend, perhaps that was just as well.

It is now clear that no one is immune from the credit crunch. The news that the German government is to break ranks with the leading European Union nations and join those smaller countries guaranteeing private bank deposits did not have the calming effect you might have expected. In part this is because it demonstrates the scale of the problem. But it is the potential knock-on effects that continue to unsettle markets.

Credit markets have seized up in a manner few could have forecast. Unfortunately, business and commerce need credit to function properly. The likely result of the credit crunch is that economic growth will slow, perhaps even move into reverse. That is what happened in the 1930s.

Couple that with the crisis in confidence that has led governments to stand squarely behind their banks and it is little wonder investors are nervous.

But the other side of lower markets is better value. This has led Anthony Bolton and other respected managers to dip their toes into the market. Of course, trying to hit the bottom can be likened to attempting to catch a falling knife. With the FTSE falling 5 per cent in early trading on Monday, there must have been more than a few bottom-fishers wishing they had stayed their hand.

It is at times like this we need to remind ourselves that markets bottom out when sellers outnumber buyers to the greatest extent. The nadir is the point of greatest despondency, which is why it takes nerve to stand out from the crowd and announce you are prepared to buy. The original JP Morgan did in the wake of the great crash of 1929 and was nearly crushed by the stampede to unload shares onto him.

Will the turn now come? It is hard to say, but by any measure this has been a severe bear market. From peak to trough, shares in the US and the UK are off by a third. Indeed, it is worth bearing in mind that our leading index, the FTSE 100, never regained the levels reached at the end of 1999. Equities have not done investors any favours on balance for more than a decade now.

And the fact remains that the future is shrouded in mystery. While I do not subscribe to the financial Armageddon theory, it is hard to foresee a swift recovery. Indeed, one of the risks with the current situation is that a backlash will develop, leading to higher taxes to punish the Masters of the Universe that got us into this mess and more regulation to try and prevent it happening again.

Even so, there must be bargains around, given the extent of the falls that have taken place. This remains a market that favours the brave and that will test the stockpicking skills of the professional manager to the limit. I am relieved that, in the rush to complete all the tasks necessary to allow me to go on holiday with a clear conscience, I had no time to leave a string of buy orders with my broker. I shall spend the next few days dusting down the list I had compiled. But I won’t be spending all my cash.

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

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