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Sense of adventure

There were some notable events last week, of which the transition of General Motors from world’s largest carmaker to world’s largest bankruptcy was just one. Inevitably, GM was dropped from the Dow Jones Industrial Average – the bellwether for Wall Street. So was Citigroup. How are the mighty fallen.

You might expect the expulsion of these icons to check the buoyant mood prevalent among investors. You would be wrong.

On the day GM filed for Chapter 11 bankruptcy protection, Wall Street delivered a cracking performance. Shares performed well this side of the pond, too. Euphoria is growing in the City and Canary Wharf.

And it’s not just shares that are rising again. Commodities have reversed recent declines. Oil has been flirting with $70 a barrel – admittedly still half the level once achieved but more than double the price at the end of last year.

Is all this due to sightings of green shoots – currently an overworked term? Not really. Look at how the dollar has fallen from favour. Not only is there a knock-on effect for commodities priced in dollars but there are signs that investors are now prepared to leave the safe haven of the green-back for more adventurous assets.

But it does seem that demand has picked up. It had to. The running down of inventories as the true state of the global economy became apparent caught many suppliers, particularly those of raw materials, on the hop.

Personally, I blame computers. Management information means purchasing can be adjusted swiftly to take account of demand.

As running stocks down only lasts as long as the stocks themselves, re-ordering becomes necessary. This is what we are seeing now. It does not mean the recession is over. Rather, it demonstrates that, even in hard economic times, some activity will always be present.

Will this rally last? Neil Woodford has taken issue with Anthony Bolton over the return of the bull market. Both could be right.

Perhaps the worst has been seen but it could be some time before things get properly better. Woodford fears disappointment if progress is slow. But there is money waiting to go in. Markets will not be a one-way street this summer.

Brian Tora (brian.tora@centaur.co.uk) is principal of the Tora Partnership

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