In the City
Contradictions
TOny Rudd A.250,000 ton oil tanker built in a German yard at an approximate cost 13.f $40 million and in virtually mint condi- 'Inn, having been laid up since she was com- missioned, was offered on the market in London recently. The asking price was $7 million and, according to the experts, this bid extremely unlikely to be offered. The would probably be no more, we were told, than $5 million. Yet they say things ee getting better and there is light at the d of the tunnel. Perhaps the answer is there is light for some and not for others. It all depends which tunnel you are down. Seldom can the snippets of what econo- mists rather dismissively call 'anecdotal evidence' (meaning what you can actually n s,ee and hear with your own eyes and ears) ave been more confusing. At a moment when the City has become extremely bullish about the outlook and the stock market is nudging its all-time high, frePorts indicate that it is extremely difficult, °r instance, to sell a medium to highly paced house in the home counties except at a figure which bears no relationship to the accepted market price. Indeed in the hous- "
h? market there is evidence that a vast rnigration is under way as home owners .
'indeavour d do and thereby part- Y. at least,to tra gete outw not the mortgage PaYMents which are throttling them. The Price of many other capital assets is ;till falling. The big auction houses like i,e'thehY's and Christie's are reputedly nog very very much less well than they were a year or two back. For the consumer it is Zginning to be a case of 'Why buy now Orthat You will be able to buy cheaper later in This easing of demand which can be seen i" so many ways at the moment goes hand hand, paradoxically, with euphoric Itarkets for the main reason that it also ads to a lessening of demand for money and credit and therefore to lower interest tares. There is no doubt that the level of in- terest rates and the direction in which they moving, even on a day-to-day basis, is urrent[Y by far the most important in- fluence on City opinion and its mood. This is Why the market could do so well in a week When en unemployment breasted the three mark. Such an event a decade ago Would havebeen taken very seriously, but
now.
The fact that the level of tilhemPloyment could be extremely harmful ci° the Conservatives' chance of re-election °es not apparently weigh in the market's lidgment. In this case the market may be said to resemble the TUC; as the latter represents the employed rather than the „riernPloyed, the market represents the in- dustry which is surviving rather than that
part of it which has gone under.
The fact, for instance, that large chunks of the machine tool industry in the UK have completely disappeared and the remaining pieces are currently doing extremely badly with an unprecedentedly low level of orders is stale news and, as the dealers say, 'in the price'. Everybody knows that one of the larger remaining units, Wickmans, now part of the John Brown Constructors Group, has been pulling the latter down with its losses, but John Brown has generated some excellent business abroad and if the Russian trans-continental gas pipeline goes ahead will generate a lot more and the Wickman losses will be absorbed out of all this. As for the rest of the great names, they are long since buried. And yet there was a day when industrialists and even economists (though so few of the latter know or care anything about industry in an `anecdotal' form) regarded the health of the country's machine tool industry as the bell- wether of its overall economic well-being. Not so now, not at least in the UK. The fact that in the world the machine tool industry is still the vital 'seed-corn' business and that it has moved to Japan, other Asian coun- tries and Eastern Europe isn't really reflected in the Financial Times indices, and the British investment institutions have moved their portfolios on to Trust Houses Forte, to Habitat (and its forthcoming ac- quisition of Mothercare) and to other ex- citing businesses further removed from the traditional areas in which the country used to compete internationally.
The question remains nonetheless; how much further is the London market going to rise? All bouts of enthusiasm are self- feeding. The current rise has brought the Financial Times thirty-share index up a hundred points from what one broker described last week as the 'Beckman/Gran- ville' line (these two being the most distinguished market commentators who have been warning us of the market's potential to fall all the time it has been ris- ing); however, few of the institutions and not many of the public have participated in the gains. They therefore feel left out and, the further the rise goes on, the more the temptation grows to join the party, and buy shares for the yet further rise to come. This is what provides the self-feeding mech- anism. Once it really gets going, the impetus to be derived can be breath-taking.
On the other hand if there is one thing which the movement of markets during the past two or three years has demonstrated it is that volatility is much greater than it used to be. A full cycle of a bear and a bull market can be crammed into a few months nowadays, whereas it used to take a year or two at the least. This means that before the investor knows what's happening and while he is still trying to get used to the phase of events of the past month or two, a new game has started just as he puts his chips down to play the old one. In the market jargon, this is to say that the risk-to-reward ratio has moved upwards very sharply and only those prepared to ignore the short term and concentrate on the long (and there are extremely few of those about these days) or, conversely, who are extremely nimble (and there are a good deal more of those playing the game against each other) should par- - ticipate. Markets can damage your health.
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