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Investment view

By and large, stockbrokers are easily pleased. Give us a few days of rising share prices and the smiles return to our faces. Wall Street has been delivering just the tiniest bit of cheer to investors during recent weeks. True, the phrase “dead cat bounce” has been bandied about on more than one occasion, but some investors are clearly taking the view that the worst is behind us and that, even if more bad news on the economic front emerges, it is sufficiently in the price to warrant some careful buying.

Even if the recent rally maintains some momentum and investors come to be convinced that the bear market really is over, it has not come in time to save thousands of jobs in the financial services industry. Last week was awash with tales of more cutbacks – and not just in the UK either. American investment bankers are trimming their sails too. Three years of falling markets have taken their toll. I fear we are far from seeing the end of this process.

We did, though, have just a tinge of excitement as one of the biggest corporate deals for some time was announced last week. Great Universal Stores has bought Homebase. This is something of a departure for the company that owns Argos. The belief is that DIY will continue to grow. Buoyed by rising house prices, homeowners have been busy spending to improve their even more valuable homes. What happens if the housing market crashes, you may ask? Then, the argument goes, people are less likely to move, so once again they will spend money on home improvements. Sounds too good to be true to me.

The retail sector has been very much a focus of attention recently. Aside from a number of the supermarket groups publishing figures last week, we also had some more buoyant than expected High Street numbers. Year on year, growth in consumer spending was 6 per cent. These figures were accompanied by news that remortgaging is reaching even higher levels. We all know where consumer spending is coming from. No wonder the deputy governor of the Bank of England has warned over what might happen if there is a slump in house prices.

Since we now know that it is the consumer that is of paramount importance when it comes to forecasting the future direction of the economy, it is worth examining last week&#39s retail sales figures in greater detail. Clothing and footwear sales were particularly buoyant – rising by 1.6 per cent over the month. The other area where spending was particularly robust was on household goods. Interestingly, it is in these areas that the downward pressure on prices is most intense. There is much talk about the present lack of pricing power, but it is only when you look at what is really happening that you understand how tough a time some companies must be having.

Overall, prices for retail sales in aggregate are reckoned to have fallen by 1 per cent year on year in October. For clothing, the most buoyant sector, the fall was more than 4 per cent. It is little wonder that companies such as Marks & Spencer have chosen to outsource to cheaper manufacturing countries.

Hopefully, the wealth generated overseas will create its own brand of consumerism. Heaven knows, we need someone to take up the running from the Americans, since there is very little extra stimulus that the authorities there can give, with interest rates as low as they are.

If the experience I had last week travelling to various events is anything to go by, people are more inclined to spend than save. The attendance at the last of the Association of Investment Trust Companies&#39 forums was disappointing to say the least. Once upon a time, there would have been new investors in the audience to learn about where to put their savings. On this occasion, it seemed it was mainly those who had been in the market for some time and were looking for a degree of explanation as to why conditions were not improving.

By the time you read this, we may have had a significant steer on what is happening here from our very own Iron Chancellor. Gordon Brown is due to present his autumn statement as this august paper hits the street. I am not expecting encouraging news. Still, it is nice to see a better tone to markets. I only hope that our finance minister does not knock things off course.


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