Last week saw me share a platform with our chief economist Simon Rubinsohn for the first time this year. Simon is a thoughtful observer of the investment scene, only too aware of the criticisms levelled at economists. You can rely on him to express opinions not qualified by the economists' mantra “on the other hand”.
Working on the basis that most investment trends start in the US, he dissected the elements of the American economy that would be pivotal in determining what happens. First was the influence of the oil price rise. Taking a tour through past price spikes, he was able to demonstrate that the apparent dangers inherent in dearer oil are unlikely to repeat themselves on this occasion.
Part of the rise has been no more than a reflection of the decline in the value of the dollar and the extent of the rise, which many forecasters have likened to the price shocks that took place in 1973/74, at the end of the 1970s and again as the 1990s started has not been proportionally as great.
Continuing oil price inflation would affect economic activity but he considers it unlikely this would happen. This certainly equates with the view of an oil analyst of my acquaintance, who points to the fact that long-term contracts are being struck at around $30 a barrel, well below the present level. This is a significant increase over recent years but it is not the stuff of which recessions are made.
Interest rates that remain at an historically low level also featured. Some increase seems inevitable but this is only to be expected after the panic measures that followed the terrorist attacks and the implosion of the technology sector. Simon does not consider that either inflation or interest rates would rise to the point where investors needed to worry.
There was a word of comfort on UK house prices. The cost of housing expressed as a multiple of earnings stands at a record high but the cost of servicing the debt looked far more manageable. Mortgage costs are way below the levels reached at the end of the 1980s and during the early 1990s and the rush into property that took place then has not been replicated this time. This suggests that the risks inherent in a downturn in the property market are less.
Property prompted the only question with one IFA keen to know whether the imminent inclusion of residential property as an eligible asset class in Sipps and the broadening of the range of property investment vehicles would perpetuate the bull market. Neither Simon nor I consider this likely to happen but it could be another factor in ensuring the residential property market consolidates recent gains rather than suffers a full-blown bear market.
Property remains in the forefront of investors' minds. It is interesting how the residential property market is beginning to look more like the stockmarket. The relentless sideways move that we have undergone for the best part of a year has allowed stockpickers to prosper and has ensured that individual performance varies greatly within the market. Similarly, there are individual properties that appear massively sought after and rise faster than the national average.
Given the rather better tone developing in the stockmarket and having heard some convincing arguments to believe that a recession is not just around the corner, I was left with an optimistic view of likely events.