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Mixed signals

Overall, this market remains buoyant, despite mixed signals emerging from a variety of sources.

Among the least expected was the news that the Monetary Policy Committee was far from unanimous in its decision to raise rates last time. So much for the belief that advance warning of higher inflation and faster economic growth had spooked them into changing their stance. At five votes to four in favour of the move, the betting is now that further rises could be delayed.

Of course, Bank of England governor Mervyn King was quick to point out that the committee comprises individuals, each responsible for their own interest rate decisions. Still, the fact that the rise took place as a consequence of Mr King’s casting vote has made many revise their views on what the future may now hold. In the end, it will be actual data that determines what takes place, but I imagine the next Bank of England quarterly inflation report, due in February, will be examined closely on this occasion.

Meanwhile, on the other side of the pond, it has been reported that stock market margin debt is back to the record levels last seen in 2000, when dotcom mania was rife. This is not the sort of information I enjoy receiving. It adds to the general feeling of unease which, anyone responsible for managing money, should feel. In itself, it may not prove significant but any setback in the US market would become more severe as a consequence.

Against this background, it was interesting to learn at last week’s Association of Investment Companies’ roadshow in Birmingham that investment trust managers had been raising their cash balances towards the end of 2006. This more cautious stance was confirmed in some measure by the com-ments of one of the managers speaking at the event. The growing difficulty of finding cheap shares was making the business of investing tricky. Even the AIM market was being scoured in case it threw up companies to buy.

This reminded me of one of the paradoxes of recent months. Against all expectations, smaller company shares once again beat the market leaders in the 2006 performance tables. Not all tiddlers, though. AIM stocks had not proved a rewarding place to be overall. Perhaps that is no more than a reflection of the nature of the companies that have been joining the AIM market recently. It all serves as a reminder that the stockmarket is truly a market of stocks.

Paradoxes make the business of attempting to judge the likely direction of the market that much more interesting.

Brian Tora ( is principal of The Tora Partnership.


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