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The history men

Conferences seem to be playing an increasingly important role in my life. Perhaps it is the pervasive uncertainty that is persuading fund groups to maintain a highly visible presence in the IFA market. The good news, from my perspective, is that fund managers appear just as confused as me. Even more important is the degree of disagreement that exists over likely outcomes. It reinforces my view that this market is as hard to second guess as it has ever been. Inflation, the credit crunch and the bursting of the property asset bubble have combined to draw a veil over the future. But forecasters never really know, do they?

These themes were picked up by Kenneth Clarke when he addressed a couple of recent Platform Advantage conferences. Organised by Cofunds and Legal & General, the aim was to give the audience a steer on what might affect markets in the weeks and months ahead. I cannot say I drew much comfort from the words of this eminent politician. He warned of more bad news to come from financial institutions, of rising inflation leading to higher interest rates and a significant fall in house values. He also pointed to the lack of manoeuvrability available to the Government as a result of the return to a borrow and spend regime under Gordon Brown.

Fortunately, M&G’s Jim Leaviss took issue with him over the issue of inflation. Leaviss said history shows us that banking crises are invariably followed by sharply falling inflation. Indeed, he viewed deflation as a far greater threat. The message was that bonds were probably cheap. Not before time, in my view.

When the last Conservative Chancellor departed for overseas commitments halfway through the series of roadshows, his place was taken by Michael Portillo. His message was arguably just as worrying. He warned that Britain had become a nation of debt junkies – a rather well turned phrase, I thought. The consequent fall in house prices was likely to dampen consumer spending, even if it would be a force for good in the long term.

There is, of course, such a thing as too much information. This has sometimes led me to make decisions that turned out to be too far ahead of the curve to deliver value. Such a wide range of opinions reinforced my view that we will travel through this difficult period and come out both wiser and stronger.

I see no reason to reverse my strategy of drip-feeding cash into the market on bad days. I may be a little early but market timing is hard to execute to advantage. Perhaps the bond market is worth a more detailed look. At the very least, a policy of asset diversification should provide some protection.

As Leaviss pointed out, we now have the benefit of monetary policy being in the hands of bankers who have studied history. Ben Bernanke, in particular, understands what happened in the Great Depression in the 1930s and is determined not to repeat the mistakes. In an election year in the US, this should be seen as encouraging, not surplus information.

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

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