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The end of summer

Sitting, as I write this, on the north Norfolk coast in what passes as a late British summer, the trials and tribulations of the global economy feel very remote. The local town is bustling, the theatre was full last night, fish and chip shops seem to be doing a roaring trade despite children having returned to school, and the only note of discord appears to be the passing of Connaught, the property services company.

This serves as a reminder that some clouds remain on the corporate horizon, despite a relatively benign results season.

Connaught is big news here on the edge of England. It provides Norwich City Council with maintenance and waste collection for its social housing estate.

Needless to say, the focus of attention in local media is on likely job losses rather than the losses sustained by investors.

Among the investors caught by the company’s administration are some of the UK’s largest institutional investors.

A number ran indextracking funds that had been obliged to own the stock but others had apparently taken a gamble the company would not fail. A case, it seems, of active managers and passive trackers being caught in the same trap.

And banks were also in the news as I got up to speed up with events, gazing out over a grey and forbidding North Sea.

Not only did Goldman Sachs cop a mighty fine from our home regulator but it was announced that Bob Diamond is to be the new head honcho at Barclays.

Goldman’s could probably recoup the money charged in a single well-executed trade, while news from Barclays received a mixed press and amuted stock market reaction.

Mr Diamond’s track record is remarkable, so his ability seems unquestionable. But some investors remember the ill-fated pounce on ABM Amro, fortunately trumped by the Royal Bank of Scotland in a move that was to bring them ultimately into the arms of the UK taxpayer.

The fear is for a deal-driven strategy in the future and for poorer relations with the coalition, though with HSBC’s Stephen Green joining the Government, this seems unlikely.

But the news that may well have passed people by last week was the modest rise in interest rates announced by the Canadian authorities.

While a quarter point increase to just 1 per cent hardly seems the stuff of which panics are made, just as Connaught reminded us that conditions are still difficult in the business world, so the Canadian decision should reinforce the knowledge that low interest rates elsewhere will not continue indefinitely.

Rates are already going up in Australia and, after such a prolonged period of historically low interest rates both here and in the US, it seems inconceivable that we will continue to see rates at this level for very much longer.

the sustainability of the economic recovery but, at some stage, government bond investors will anticipate a return to more normal conditions and dive for cover.

In the meantime, shares in the UK continue to enjoy modest support, driven in no small measure by the belief that the upturn in merger and acquisition activity has further to go.

Indeed, the FTSE 100 would be even higher, were it not for the fact that BP shares continue to languish at just 60 per cent of this year’s earlier peak. They published their report into the Gulf disaster last week. The blame game has begun. This story will run and run.

Brian Tora is a consultant to investment managers, JM Finn & Co


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