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Potter warning of further falls

Thames River co-head of multi-manager Gary Potter says he is sceptical of the current market rally and warns that the UK and US are moving from a credit crisis to a solvency crisis.

Speaking at Adviser Live 2008 in London last week, Potter said he believes the market will run out of steam and investors should wait for a second dip before buying in again.

He said: “I am surprised that the FTSE 100 has only gone down by 1.5 per cent since October 1, 2007, which on the one hand is quite resilient but on the other hand is quite worrying. The cynic would say the recent rally has been orchestrated to allow banks to recapitalise.”

He said the move from a credit crisis to a solvency crisis for UK and US consumers is likely to be led by the housing market and added that the market has only seen the tip of the iceberg.

Potter said: “It is for that reason that we have been raising our cash levels in the past few weeks. I agree that there are plenty of opportunities out there over three and five-year periods but for now it is a case of waiting for this secondary crisis to be over and then you buy.

“I do think we are nearer the end than the beginning for financial companies with regards to the credit crunch, as it is now a known factor. I think there is more bad news to come out but I do think the more serious problem is the broad economic effect of people not being lent money to grow their business and that will hit the economy.”

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