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Investment View

The London stockmarket was not a happy place last week. It was not that the news flow was disappointing but somehow the market just got it into its head that it wanted to go down. Given that Wall Street was beginning to build up a head of steam, the London performance was worrying.

On the positive front, Christmas did not appear to have been quite as bad as some had forecast. The picture was mixed but the British consumer has not yet shut up shop. The care being exercised, though, suggested that people are aware their tax bill is due to rise. High-street spending remains a threatened measure of economic well-being.

There are concerns that Gordon Brown may have got his arithmetic wrong. The Treasury select committee gave him a hard time over what is happening in the economy. The Iron Chancellor is sticking to his guns. He clearly believes the public sector will bale out the economy and it does look to be the principal growth area in the UK. Perhaps New Labour is not so new after all.

The news on pension funds and insurance companies was pretty universally depressing. Norwich Union cutting bonus rates was hardly a surprise. And the fact that the European pension industry seems to be moving steadily into deficit can hardly be considered earth-shattering news either.

Rather strangely, it appears that the cult of the equity has not been knocked on the head in Germany as a consequence of probably the worst market performance since German investors discovered there were other things to buy than bonds. According to the DAI (the institute for share ownership) the number of retail investors rose by 13 per cent during the second half of 2002. This means more than 5,250,000 Germans now hold individual shares. This does not sound like a culture in retreat but is still significantly less than the number of shareholders in the UK.

Interestingly, the country that has achieved the greatest penetration of share ownership is Australia – a financial services society that is lending copious ideas to us here in Britain. Perhaps it is their growth or their multi-culturalism or the fact that the weather is better there. Whatever, expect more references to the Australian approach as the year unfolds.

Last week saw me talking to the Birmingham Life & Pensions Group on what I thought may happen to markets. I found myself talking the assembled company into a state of gloom. It was not that shares stood at unreasonable valuations. Rather, it was that I could not get out of my mind that a shock, of whatever description, could send the index spiralling down. This is what comes of having been around since the 1973-74 bear market. I know it can get worse.

I bumped into superbear David Linton of Updata at a television studio later in the week. He, like David Schwartz, the stockmarket historian, has been revelling in the discomfort of traditional City thinkers. As a technical analyst, he had felt that the bear market had further to travel. Well, that was his message a year or so ago. How right he was.

I hope he is right now. While he remains worried that any breach of previous lows could stimulate sell signals on his charts, he felt the worst was now behind us. But he considered a year of moving sideways before a new bull market commenced was the most likely outcome.

Interestingly, David Schwartz has also turned around and become bullish. So why, I thought, am I finding it so difficult to get back on a buying tack? You can get too close to this business and the real pain is being felt in the investment community. We are a lagging indicator. Investors should take heart from that. I hope I can.

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