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Investment view

I have a colleague who uses charts extensively in determining market timing. He has not been an encouraging companion of late. His view is that the UK stockmarket will continue its slide, perhaps falling to as low as 4,800. That will mark the end of the bear market, in his view, and from then on everything will be sweetness and light.

You know the old adage – just when you think things cannot get any worse, they do. Last week was a bit like that. The value of Marconi shares fell to the point where the whole company was capitalised at less than £800m at one stage. Its debt only just escaped being accorded junk bond status. It seems the bursting of the telecoms bubble is nearly complete. One newspaper likened the collective rush of blood that investors had in chasing telecoms stocks – based in no small measure on the heavy investment which the companies themselves made in the industry – to Dutch tulip mania.

While it is true that billions of pounds of shareholder value have been wiped out, it seems a harsh judgement in my view. But the performance of this sector will have undermined the well-being of many investors this year. Although the picture is still mixed in terms of business and economic news flow, one has to admit that storm clouds have been gathering. There have been many stories of job layoffs, notably in technology and telecoms companies but now the consultancy field is featured increasingly. There is little doubt that business and commerce is presently cautious in the extreme.

Manufacturing industry continues to feel great pain, with output falling at the fastest rate for a decade. Yet, still, the Bank of England&#39s monetary policy committee decided against cutting interest rates. For that, we have to blame the robust nature of the housing market. Lombard Street Research considers that the strength of the housing market will support the UK economy. We should be so lucky.

Let us get one thing clear. So long as the consumer keeps buying, the economy will remain on a more or less even keel. Maintaining a shopping syndrome relies on the elusive feelgood factor. In other words, people have to feel confident enough to spend money. They lose that confidence when their job is on the line. Amazingly, despite daily reports of downsizing in industrial enterprises all over the world, employment figures appear to be holding up well on both sides of the Atlantic. But it is a delicate balance.

There are times when I feel something of a lone voice. It puts me in mind of Bob Beckman, he of House Quake fame. He predicted the collapse in the value of housing values in the UK. In the end, he was right. House prices did fall by as much as 40 per cent during the period from the end of the 1980s to around1992 but not before there had been the most phenomenal rise. This was fuelled in no small measure by ill-considered measures introduced by Chancellor Nigel Lawson. The reality is that you would have lost out by taking Beckman&#39s advice when it was first delivered. He only turned out to be right after a long bull market in housing.

I feel that my predictions will only come good when we have experienced the full extent of a major bear market and that is what we are suffering at present. Investment management is a zero sum game. The index is an average and does not suffer the dealing charges and management fees that funds incur. The trick is to try to ensure your fund delivers precisely the performance expected of it. It may not be a comfort if you lose money but at least it should be no shock to those who have chosen to back you. I remain cautious of new economy sectors and fear that, despite the savaging meted out, we need to look towards a wider revival of the stockmarket. It will come. But the waiting is beginning to get to me.


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