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The change in sentiment over the past week has sent Gilt prices upwards and share prices downwards. Last year on this website, you will have read about the inevitability of it all and, for the record, there is plenty yet to come.
The weekend press was full of analysis. One brave business editor wrote "take last week's shudder as a warning"; one sub-editor penned the "Is it time to quit?" question, but otherwise the usual assertions that shares are good for the long term were prominent. If this reminds you of early 2000 when the dot com bubble burst, you should not be surprised.
Bear markets tend to be misunderstood. The advice that it is a healthy correction ignores the fact that bear markets have to start somewhere. The advice to average your equity purchases overlooks the fact that pound cost averaging can only work if markets are high at the time investors need to cash in. The advice to buy more shares while prices are "cheap" overlooks the fact that prices may go on getting cheaper.
Our view is that the countertrend rally from 2003 to 2006 has now ended and the great bear market of 2000 to 2002 has resumed. Rising Gilt (and US Treasury Bond) prices will now be the norm, and eventually there will be new lows in stock markets.
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