Fund managers, as a breed, are usually firmly in the “glass is half full” camp.The bulls will tell you that equity yields relative to government bonds are very attractive, that price earnings ratios are modest, more companies are reporting increased sales, and that corporate UK has healthy cash balances. Sorry, ladies and gentleman, but this time the glass is three-quarters empty – and going down. In my experience, unless something truly shocking is happening right in front of their eyes, most fund managers are happy to immerse themselves in the daily routine of company reporting and meetings and don’t make the time to analyse the bigger picture. Those that do will realise that, just around the corner, some very large timebombs are ticking away loudly. One of the biggest bombs is the euro which, simply and straightforwardly put, is in the same boat as all those diverse countries that attempted to cling onto the gold standard in the dire economic conditions of the early thirties. One size does not fit all and Europe’s politicians are still trying to hide from this reality. When this explodes, I don’t think we shall be reading many positive company statements, do you? On the home front, the new government has lost no time in driving home the cost-cutting message. Here, companies are generally rather like those fund managers that prefer to immerse themselves in their daily routine. Take a snapshot now and companies will invariably tell their shareholders that they are not seeing any downturn in sales. This is about as useful as someone telling you that the sun is currently shining. Does anyone really think that the combination of higher taxes and ten to 20 per cent cutbacks in government expenditure is going to improve the chances of most companies making higher sales (and hence the sun continuing to shine) in the coming months and years? No, earnings will fall and stock markets will sink. Personally, I wouldn’t even think about investing meaningful amounts in our quoted companies until the FTSE 100 starts with a three. What to do if you are running an SME? In any prolonged downturn, there are always some winners and these are invariably companies that are involved in life changing technologies. If you are lucky to be involved in such, then hang on in there. If your company is rather more prosaic, I suggest you take advantage of the current “Sucker’s Rally” and sell to a competitor before the sun gives way to a whole series of winter-type depressions.
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