Published by Kauders Portfolio Management, Authorised and regulated by the Financial Services Authority
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As the financial interests limber up for the New Year forecasting season, you may care to recall the tone of much comment just four years ago. Markets were supposed to always go up, and if they went down, you were expected to buy more. Now consider the tone of comment in recent weeks. Splits, endowments and with profits bonds are considered to be isolated problems. Your financial future is, apparently, rosy if you can just divine the right equities or funds to buy.
It was J K Galbraith who said "The financial mind is characterised by a very short memory span". When we read how private investors are again buying equities, how the public believe they should invest in bricks and mortar for security, the wisdom of Galbraith's observation is obvious. We believe that current conditions are a precursor to another downward leg in the great equity bear market.
Certainly, the current worries about higher interest rates and inflation look misplaced. Only the selfless act of the British consumer, taking on debts that cannot possibly be afforded, is keeping the British economy afloat through artificial spending of money that has not been earned. By the same token, the selfless act of America in living beyond its means, is keeping the global economy afloat. Come to think of it, the selfless act of the Japanese Ministry of Finance, allowing banks to count deferred tax as an asset, is keeping the Japanese financial system afloat.
Something, somewhere, will blow this charade away. In the Spring of 2000, the proximate cause of the first leg of the bear market was a wave of selling that appeared from nowhere to hit the dotcoms. In 1989/1990, higher interest rates slowly brought the British property market to its knees. Our forecast for 2004 is for lower share prices, lower inflation and lower interest rates. We will be amazed if this is splashed across the headlines.
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