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February 2009 Investment Report




There is so much to write about this quarter that I have decided to provide a condensed view of the overall situation by reproducing verbatim the views of Martin Wolf of the Financial Times and Jeremy Laing of Liontrust Investment Services Limited. Please contact me if you would like more detail on current events.


Martin Wolf of the Financial Times

‘..what are the principles to be followed? I suggest the following:

First, focus all attention on reversing the collapse in demand now, rather than on the global architecture.

Second, employ overwhelming force. The time for ‘shock and awe’ in economic policymaking is now.

Third, make a future normalisation of fiscal and monetary policies credible.

Fourth, act in concert. Even the US cannot solve its problems alone.

Fifth, avoid protectionism.

Sixth, strengthen the ability of global institutions to help the weaker.


So how are we doing against these standards? ‘Better than in the 1930’s’ is the best one can say. The world desperately needs Mr Obama to take a firmer grip at home and lead abroad. The plans he is now announcing give him a chance of doing the former. The April summit of the Group of 20 countries, in London, is his chance for achieving the latter.


Unfortunately, what is coming out of the US is desperately discouraging. Instead of an overwhelming fiscal stimulus, what is emerging is too small, too wasteful and too ill-focused. Instead of decisive action to recapitalise banks, which must mean a temporary public control of insolvent banks, the US may be returning to the immoral and ineffective policy of bailing out those who now hold the ‘toxic assets’. Instead of acting as a global leader, there is resort to protectionism and a ‘blame game’.


This way lies a catastrophe. I expect little enlightenment from the rest of the globe: the European Central Bank is allowing the eurozone to collapse into deep recession; Japan is in meltdown; China has at least announced a big stimulus package, but it lacks a credible plan for needed structural reforms; and most other emerging countries can only try to stay afloat in these storm-tossed seas. Their accumulated foreign currency reserves of the 2000s will help. But the resources available to the IMF, even with hoped-for doubling, are too small to give most emerging economies the confidence they need to risk keeping their spending up.


Decisions taken in the next few months will shape the world for a generation. If we get through this crisis without collapse, we will have time to construct a better and more stable global order. If we do not, that opportunity may not recur for decades.


We are living on the cusp of history. The priority is to reverse the downward spiral of despair through overwhelming and concerted action. That will only occur if the US now gives the leadership we need. Mr Obama may even find, as many presidents have found before him that leading the world is easier and more rewarding than cajoling a recalcitrant Congress. This may not be the challenge he expected. But it is the challenge he confronts. History will judge his presidency on whether he dares to succeed’.


Jeremy Laing of LionTrust Investment Services Limited

‘What conclusions does history lead us to for the UK in 2009? The current banking crisis is particularly broad in its scope – affecting almost all banks in the western world. It is also especially deep, affecting large portions of banks’ loan books (many of which have not yet been recognised). The policy response has been confused, but in essence, very forgiving. None of this bodes well. The recession is likely to be long and repercussions of the current Government policy in the UK are in danger of causing a currency crisis, further exacerbating the economic problems. To quote one of the earlier studies: ‘The leading indicator literature suggests that twin crises tend to occur against a background of weak economic fundamentals, with banking crises more often than not preceding currency crises which in turn, exacerbate banking crises’ (see Kaminsky and Reinhart (1999)). A lot of output is likely to be lost, a high tax burden created and inflationary pressures will build.’   



The views reflected herein are those of Mitchell Neale Investment Services and should not be regarded as a recommendation to invest in any one product or service; before investing you should always consider personal investment advice.


Mitchell Neale Investment Services does not accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. Investors should be aware that the value and income from investments can rise and fall and that past performance should not be considered as a guide to the future.


Mitchell Neale Investment Services

7th February 2009

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