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Investment view

Greetings from the city of dreaming spires and glittering prizes. Or am I

confusing where I am with Oxford? It is, as it happens, Cambridge, that

centre of academic excellence , as I endeavour to determine whither the


No one said that the business of investment management was meant to be

easy but seldom have I seen such conflicting signals. Nor have I come

across such widespread disillusionment with investment matters as that

which appears to exist in the minds of the great British public. Now that,I

have to say, should be a positive sign. The crowd is usually wrong and the

crowd is still refusing to buy.

Let us take a brief journey around recent developments. High on the agenda

of notable events is the decision by the Federal Reserve Bank to cut

interest rates by a quarter point. This was the eighth consecutive

interest rate cut this year. Not since the dark days of the early 1980s

has the Federal Reserve Bank been so robust in its determination to breathe

life into the American economy. But not only has it cut interest rates, it

has indicated it is likely to do so again, and soon. This does at least

explain in some measure why the US stockmarket, rather than rejoicing in

the reduction, chose to turn its back on cheaper money and resume its

downward path.

The US economy is passing through a difficult phase. The tax rebates and

the recent – and no doubt future – cuts in interest rates should prevent

that strangely named scenario of negative growth developing but the robust

economic expansion of the 1990s appears to have come to an end. Moving from

5 per cent plus growth to below 1 per cent is sufficient to stimulate the

smell of burning rubber on the economic road. The speed of the slowdown

will have been painful. However, despite the apparent pessimism of the Fed,

there is a silver lining. Given that the principal problem Stateside lies

in the industrial sector, salvation could be around the corner with the

weaker dollar.

Of course, this was all comprehensively highlighted in this column last

week, so it was with a degree of smugness that I read the HSBC

institutional note – Dollar Doubts – which drew pretty much the same

conclusions. It even arrived at a similar recommendation for asset

allocation as that developed by my committee of worthies back at the beginning of August. Reduce Europe and back the US is its conclusion. How could I

possibly object to such a wise recommendation? But it does come just as

there are signs that life may once again be sparking in the centre of


Germany has been faced with the twin problems of rising inflation and

falling economic activity. Stagflation, as the ultimate destination of

these two trends is termed, is the fear of finance ministers worldwide. But

the signs are that the trends are slowing and could even be reversing. We

already know that inflation has fallen sharply in Europe&#39s biggest economy.

Now we learn that business confidence is on the up. The Ifo business

climate index delivered a surprise rebound in July. It was the first rise

since January and was interpreted by the market to suggest that the worst

of Germany&#39s economic woes may be over. It was enough to lift the euro to

a five-month high.

But back to the buyers&#39 strike that is still in place. The new economy

sectors of telecoms and technology must shoulder a portion of the blame.

Investors had their fingers comprehensively burnt. As it happens the tech

reporting season in this country is about to be upon us. I cannot expect

much in the way of good news but perhaps, once we get the poor figures that

are expected out of the way, investors will think that they might dip their

toes back in the water. By this time next year it may look as though

today&#39s prices were a steal.


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