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Past couple of days are likely inflection point for markets – Mott

PSigma income manager Bill Mott believes the global action seen in the past few days is likely to mark an inflection point in markets.

Mott says that the action taken by the Government, the Bank of England and the Treasury over the banks has been a blueprint for other world nations as part of co-ordinated international action.

Mott also hopes the bail-out will mark the nadir for UK equities and is the ‘beginning of the end’ of the turbulent market conditions seen in the past few months.

He says: “It is my view that the first step that the Government has taken in underwriting the banks’ balance sheets will be very positive for the economy in general and I would expect it to be followed by significant cuts in the interest rates in the next few months.

“Clearly the Bank of England’s worry about inflation over the last six months has now proved to be misplaced. Deflation is much more of a fear both in the UK and elsewhere in the world and I can therefore see no reason for UK interest rates not to fall dramatically.”

As for his own fund, Mott says he is now trading very actively, recently adding his first exposure to mining firms in the last couple of weeks.

He says the banks are now too cheap but there needs to be a greater insurance that everything has been shored up and money is pumping through the system so that write-downs or a slowdown does not destroy the new capital going in.

He says: “After this trauma is over, the banks will be in a powerful position because there will be fewer strong competitors. Looking at the HBOS/Lloyds merger, the new company is going to have a third of the mortgage market in the UK with very wide margins and in normal times that would not be achievable, due to competition rules. The banks will become like ‘private sector utilities’ and will be allowed wide margins on the business they do. They will be regulated strictly and they will be much lower risk investments with good returns. The problem is just getting from where we are now to that point.

“Prior to last weekend’s announcement of the government stakes in the major banks, we were fractionally overweight in the four domestic banks but close to the index weighting. Obviously the dividends have mostly vanished for the foreseeable future. We will make an assessment about what we will do with the banks, given that lack of dividend.”

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