Recognising the trend change

CONTRARY VIEW

Published by Kauders Portfolio Management, Authorised and regulated by the Financial Services Authority

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No. 65 22nd May 2007 Recognising the trend change

Almost every source that we see has an opinion on the great credit bubble:-

The risk of a deep property slump (The Observer)
Do estate agents selling out herald the top of the market? (The Independent, about Foxtons)
Markets cannot be driven by merger momentum for ever (The Sunday Times)
Risks in credit derivatives to affect pension funds and capital markets (The Economist)

With changing trends, advice about what investors should do with their money is noticeable by its absence. Do you remember when stock markets fell apart in 2000? Nobody said that it was going to happen. Do you remember when property markets fell apart in 1990? Again, nobody said it was going to happen and more recently, nobody said that the American property market would hit trouble.

So here's our opinion about investments.

There is no point in staying in equities to "wait and see". You might pick one share that goes up against the trend, but you are highly unlikely to avoid the general malaise when it comes.

Buy Government Bonds - Gilts in the UK - now. Don't wait for prices to rise (lower yields) which will happen once the flight to quality gets under way. Yields will be tumbling once there is growing evidence of bad debts, no matter what the inflation picture may be. And inflation is, in our view, likely to disappear as retail spending slows down and consumers retrench.

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