Email of the day (2)
Comment of the Day

October 29 2010

Commentary by David Fuller

Email of the day (2)

On confidence in analysis:
"Thank you David and Eoin for your commentary.

"I mean what I say. For years I have known that the average investment advisor in the UK is really an order taker, happy to agree if it means a commission to him with no interest or responsibility in regard to strategy or timing.. You have added that extra ingredient of confidence to what I already knew from my own feelings and experience.

"I note now that you are getting cautious about the latest bullish change in sentiment expressed in rallies worldwide.

"I sense that QE2 is more of a threat than a relation to the USA.

"I should appreciate your comments on the BoE's intentions in relation to QE2 in the UK. I still have cash in Sterling. I regret that I did not buy Australian dollars months or years ago. But my real interest is in buying a flat in the South of Europe. Should I buy Euro denominated shares now? Or uranium stocks, in whatever currency, or wait for the Euro to disintegrate?
You may have other suggestions to add to the limited range of options implied in my questions. How depressive can Mervyn King get? And fundamentally is he right about the value of Sterling.?

"My gut instinct tells me that prices for all industrial metals and associated mining stocks are way ahead of events (although I own some and although Goldman Sachs increases its 2011 price estimates for metals weekly). Is my view insupportable on the basis of market evidence? Or am I just failing to accept the "flow" and wishing retrospectively that I had joined the party wholeheartedly 3 months ago?

"If most metals are ahead of reality, where does good value now lie? Energy? But OPEC publicly are saying that 70-80 dollars is about right for oil. Like you, they fear that higher prices will kill the global recovery.

"Or Russia, which I know you don't like, but which is lowly rated for a country rich in resources and with a well educated population."

David Fuller's view Thank you for your thoughtful feedback. As analysts running a global strategy service, Eoin and I are well satisfied if we "have added that extra ingredient of confidence" to what you already knew from your own feeling and experience.

I appreciate the analytical thought in your own market summary above. I do not think that you expect me to make a line-by-line response, because we also research, ponder, analyse and talk about many of these issues on a daily basis. Nevertheless here are a few thoughts:

No one knows what the future holds so Mervyn King is cannot sensibly know the extent of his further QE activities, should they be deemed necessary, but he is unlikely to feel entirely comfortable under the circumstances. I do not expect the "Euro to disintegrate", at least not while Germany is a member, but I do not assume that every other country which joins will remain a permanent member of the single-currency.

It is good for us to have financial goals, such as your flat in the South of Europe, provided they do not provide too much additional pressure. When stressed, one can too easily slip into emotional rather than analytical decision making and feel guilty whenever fluctuating market positions experience setbacks.

There is some froth in stock and commodity markets, as Eoin and I have mentioned recently, following persistent gains since late September. They appear to have run ahead of Fed QE2 expectations. A reaction and consolidation phase has commenced and this could persist for a while. However, most markets are still reasonably underpinned by technical support following their prior and lengthy mean reversion corrections. Monetary policy remains accommodative.

We also know that serious problems lie ahead. The one that most concerns Fullermoney is commodity price inflation, which we have mentioned on a number of occasions. Fortunately, the price of crude oil has yet to spike higher in this cycle.

The first challenge for all of us is to remain analytically engaged. This includes reviewing price charts of the important markets on a frequent basis. If we can monitor price trends, which the charts reveal, our timing will improve. Successful investors do their research and pay attention to crowd psychology. They strive to buy low, run trends and sell high. Remember, in markets a risk properly assessed is also an opportunity, subject to timing. We should also try to enjoy the challenge of investing, viewing it as a serious game. Do these things diligently and you will probably look after your investments more successfully than someone else managing on your behalf.

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