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Waiting game

I have been thinking of putting some more cash back into the market. Not yet, mind. Perhaps after the next wave of nervousness drives shares back below 4,000. We are, after all, in May – the season to sell and retire to the country. And we have an approaching flu pandemic – or at least that is what the media would have you believe. There are still plenty of people around to whom the glass is half empty, rather than half full.

As it happens, a major flu epidemic paints a somewhat worrying picture. The restrictions that will become necessary if it all goes as the pessimists believe would add pressure on economic activity already constrained by the credit crunch and the spreading resultant recession. Mexico is already counting the cost of lost tourism revenue and people staying at home to avoid human contact. Worldwide, the consequences do not bear thinking about.

As if this much hyped development is not worrying enough, my chartist friends tell me a further downward leg in share prices is inevitable. They are forecasting a correction which will see the market give up the gains of the last few weeks and test the March lows. The good news is that such a move should signal the end of the bear market and the resumption of better trading conditions. But they are not always right either.

Even so, the evidence does seem to weigh in favour of not taking precipitate action. The market, on the other hand, seems to be taking comfort from the emergence of the occasional green shoot.

In the Far East, signs of a modest resumption in growth are gathering, while president Obama has survived his first 100 days without losing much of his popularity. Indeed, for a leader who inherited problems the like of which occur once in a lifetime, he appears remarkably sanguine.

What could go wrong? Trawling the Square Mile, I become all too aware of considerable pain below the surface. Job losses are increasing – and in some unlikely places, too. We are seeing the natural – and by no means negative – effects of an economic downturn. Companies are trimming fat, closing marginal operations, downsizing where they can, concentrating on core capabilities. We will emerge leaner and fitter. That is more good news.

But there are still things that could go wrong. By the time you read this, we may know whether the US automobile industry has survived. The signs were not too encouraging last week but if a week can be a long time in politics, it can be sufficient time to determine life or death in leviathan industries like car manufacture.

Swine flu could yet engulf confidence. The last thing we need is travel grinding to a halt because of the spread of this virus.

A two-way pull is no bad thing. Many of the long-term indicators are beginning to look a little more positive. Confidence measures, as an example, have stopped getting worse. Destocking seems to have halted, although there may still be surplus capacity in some industries, and in my home village three houses on the market for ages have all sold. How much for, I’m not certain but that is why I’m being long-term bullish but short-term cautious.

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

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