The question then is whether a narrowly based financial market recovery is sufficient to boost the US economy, and hence the world economy. It is a necessary condition but it is not a sufficient one.The mainstream view of the professional investment community is that the US economy will recover in the second half of this year, and that it will resume something close to trend growth in 2002. In other words, the present slowdown will be similar to the pause in growth in 1998, rather than the, albeit mild, recession in 1990-91 The aggressive rate-cutting by the Fed will succeed. On that basis, the various investment banks recommend you to buy securities, arguing in particular that the telecom companies’ securities are oversold and are due for a recovery.The minority view is that we are in for a standard cyclical recession, despite the rate-cutting, because the imbalances in the US economy will take two or three years to correct themselves and this will only happen in recession. US savings will have to be rebuilt and US companies will have to take out more capacity to cut costs and restore margins. On that view, putting money on to the market in general carries too much risk, though there are always specific opportunities.My own view, for what it is worth, is that the more negative minority will prove right on the economy – but the more positive majorities will prove right, at least on a six month view, on shares.Perverse? Well, not really Go back to the bond chart on the left.
The jump from a yield of 12 per cent to one of more than 20 per cent is enormous: anyone who invested in January 2000 will have lost something approaching half their investment. But at some stage the risks are adequately accounted for.Think back to the emerging market crisis. Anyone who was prepared to invest in a broad range of securities in emerging markets six months after the crisis hit will have done fine Of course investment has to be selective. The prime characteristic of these cycles is that in the downswing the good get swept down with the bad, while in the upswing people have more time to make a judgement and therefore the good do not pull up the bad. Nevertheless, anyone who invested blindfold with a pin will still be ahead.You have to be profoundly pessimistic about the US telecommunications industry to believe that the risks are not covered at 20 per cent yields OK, so they go to 25 per cent for a bit Some companies go under. But eventually real businesses will produce real returns, even if there is a second leg to the US downswing that is not generally priced into the market.That is the trouble with turning points.
By the time it is clear they have taken place it is too late to take advantage of them.My guess is that the turning point for hi-tech shares is still another three months off But every Marconi-ish story brings it closer.. Bovis Homes, the housebuilder, yesterday reassured investors that it remains on track to meet earnings forecasts, but the news was no surprise given the current strength of the housing market. Bovis Homes, the housebuilder, yesterday reassured investors that it remains on track to meet earnings forecasts, but the news was no surprise given the current strength of the housing market.
Recent surveys show that prices are rising at around 10 per cent a year, easily outpacing inflation.Malcolm Harris, the chief executive, said Bovis is confident it can report successful full-year results provided – and this is the key point for investors – current market conditions persist.There’s the tricky point. Housebuilders such as Bovis are essentially cyclical investments that rise and fall with the UK economy, which has begun to look a little shaky.Major influences that propelled Bovis’ share price last year were falling interest rates and cheaper mortgage deals for many home buyers, combined with buoyant consumer confidence. But many economists believe that interest rates have bottomed out and will start to rise in the near future – possibly as early as today after the July meeting of the Bank of England’s rate-setting Monetary Policy Committee.The gamble for investors is that they must decide whether they believe the heat will go out of the housing market in the near future or whether it will remain buoyant for some time. The recent sharp fall in Bovis Homes’ share price suggests that the market thinks the slowdown is coming.The company has already admitted that growth in the first half has slowed, as work on many of its construction sites was held up by torrential rain that made last autumn the wettest for 125 years. Bovis expects that profits this year will be weighted towards the second half.The company floated in December 1997 at 200p, following its demerger from shipping giant P&O, and is one of the best in its sector.
The shares peaked at 398.5p earlier this year but have fallen back in recent weeks.Analysts predict that Bovis will make pre-tax profits of £76.3m in the year to December, up from £67.1m in 2000, and earnings of 47.3p per share. The dividend should come in at 12.7p.The shares, up 1p to 341.5p yesterday, trade on a relatively low prospective price/earnings multiple of 7.2 and carry a respectable dividend yield of 3.7 per cent.Despite the low p/e rating, the shares remain a hold until the interims in September, when analysts expect that the economic outlook should be clearer and when Bovis reveals the extent of the weather damage.Emblaze Things have gone from bad to worse to horrible for shareholders in Emblaze Systems, the streaming video specialist. The Israeli group, once worth more than £3bn during the tech market boom, has now shrunk to just £255m.Yesterday the company elaborated on its recently announced technology licensing deal with AlphaCell, which gave Emblaze a shareholding of 20 per cent for $6.4m (£4.5m). Emblaze insists that there is “clear synergy” between the two companies, because AlphaCell designs high-end next-generation mobile handsets.The second reason for the company’s statement to the market yesterday was that “management has noted the recent share price decline in the company’s share price and sees no trading reason for this movement.” Really?For one, how about the desperate trading conditions gripping telecoms network operators and the even tougher times for equipment suppliers – key customer’s for the company’s products. For another, how about the fact that Emblaze continues to lose money before interest from its near- $400m cash pile is factored in.More interesting is that Eli Reifman, the chief executive, recently invested a further £93,000 in the stock at 209p per share, taking his stake to over 10 per cent of the company.
