Saturday, 11 August 2007

Testing times for markets

There is unlikely to be any reader who is unaware of the turbulence in the stock markets right now. I unfortunately have to claim I was correct in forecasting (26th July) that the FTSE100 would test 6000. It closed Friday on 6038 - a whooping 10% off its peak of 6600 at the beginning of June. I think that is now officially referred to as a 'correction'. Only a 'crash' is worse.

Interestingly NASDAQ actually rose 1.8% last week. Indeed UK stocks were much more badly affected than US. The Techmark was down only 1.1%. My own tech portfolio took a beating but is still above water. My Apple shares were up 51% a couple of weeks back - but are now up 'just' 37%. The only stocks now under water are BT - down 7% - and EDS - down a massive 16% - since I bought them in early 2007.

You do have to ask yourself about the intelligence of the financial community. Surely everyone knows that if you extend mortgages to those with dubious credit ratings, you will get defaulters. Everyone knew this didn't they? Also, didn't everyone know that if you lend money to fund private equity deals at low interest rates and without any security, when interest rates increase you get more defaults there too. Then, of course, we all thought we were OK because we are not engaged in either activity. Except that our banks are and our pension schemes are exposed. This is made even worse as nobody knows exactly which banks are most exposed.

The next time I run a business and get a lecture from my bank manager on how to run it...I shall remind him of this.

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