Worries on Both Sides of the Pond

08/14/2008 12:00 am EST

Focus: GLOBAL

John Snowden

Contributor, The IRS Report

John Snowden of the UK’s The IRS Report frets that bad economic news is limiting investment opportunities in both the US and UK.

At the beginning of June, the FTSE Index made a valiant effort to maintain the 6,000 level when the Dow Jones Industrial Average was holding steady at 12,750. June [turned] out to be the month when the message that this was a mere blip was discarded in the States and that the spending spree over the last few years had to end if the consumer was to survive without increasing debt.

The Street therefore notched down as the month wore on and by June 18th, it had experienced two triple-digit down days which saw the market dip below 12,000 to 11,947 intraday to recover towards a close at 12,212. (The DJIA has since slid well below that close—to 11,370—despite several stellar days of gains last week—Editor.)

The UK thoughts on the banking sector became less bearish as Europe's largest ever
£12-billion rights issue from the Royal Bank of Scotland was accepted by 95% of shareholders and was deemed a success. Other banks are in the queue, which will keep the sector depressed.

The real worry emerging in the UK is the rising price of almost everything from food to fuel. Is the accelerating oil price due to a speculative spike or is there more to come—could $150 or even $200 be the next stop? (So far, crude oil is down some $25 a barrel in the last two weeks on weakening demand—Editor.) Rising prices mean the majority will have to adjust and trim their standard of living.

Having tried to talk interest rates down in the spring, the boot is now on the other foot and we could see two or even three quarter-point interest rate rises before the year is out. If you take Tesco (LSE: Tesco.L) as the bellwether stock—on the basis that it takes £1 of every £8 spent in UK retailers—we must be heading for trouble, as even that well-managed colossus is experiencing a slowdown.

The big questions are where to invest and in what? Some say Japan may be the answer, but I would expect most markets in the world to either fall or mark time. I always have a little smile when I hear the institutions talking about a good relative performance, which in my book means that you still lose money on paper but not as much as you would in other situations or markets.

My own strategy is to stock pick special situations or closely monitor shares you have always fancied. Divide your intended capital commitment to the stock into three parts and buy on FTSE 100 Index triple-digit fall days until you have [your full allocation].

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