Why I'm hoping for a bullish decade

By MoneyWeek editor-in-chief Merryn Somerset Webb Jan 12, 2010

Merryn Somerset-Webb

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There's a lot of pressure on financial commentators around this time of year. We're expected to tell people what will happen over the next 12 months, despite mostly having no idea. This January comes with a heavier burden than usual. It's also the start of a new decade, so we're expected to make a stab at guessing what will happen over the next ten years.

On the plus side, looking back over my own record, I can see that I have, so far, been better at long-term than short-term forecasting.

I spent almost all of the noughties as a bear on equities and a bull on commodities – gold in particular. I strongly favoured emerging markets over developed markets most of the time, and I spent the second half of the decade as a property bear.

All those calls worked out in the end – but not without a fair amount of short-term pain. It didn't feel good hating equities during the bull market of 2003-07, and it certainly didn't feel good being a property bear from 2004 onwards.

It also didn't feel great last year. I expected a spring bounce in property and equity prices, but, while the actual outcome now makes sense in hindsight, given the scale of the government's intervention, I never expected the bounces to last quite so long.

So what next? My best guess for 2010 has to be that we'll start well and end badly.

Stockbrokers are always talking up the equity market as a discounting mechanism: it isn't pricing in what's going on right now, they say, but what's going to happen next. However, right now, the equity market may have priced in the wrong thing: a fast V-shaped recovery rather than growth driven by an unsustainable fiscal boost (cash for clunkers and the like), combined with a low-interest-rate environment.

If so, all the stocks that shocked us with their brilliant performances in 2009 (think banks, retailers and so on) might soon be shocking us with similarly miserable performances.

It is perfectly normal for markets to rally 50% or so (as they have since last March) and then collapse back down again as investors come to their senses about the real state of the economy. It has happened over and over again in poor Japan in the last 20 years, for example.
And it doesn't take much looking to see what might bring investors to their senses.

Take the retail numbers, for instance. Christmas might have looked OK, but remember what we are comparing this year's sales with: sales around Christmas 2008, a year when we couldn't really be certain that the banks holding our current accounts could hang on past Hogmanay.

If things were really so much better this year, surely we would have spent not a little more,  but massively more than last year?

We should also be cutting back on – rather than ratcheting up – our shoplifting. A report out from the British Consortium of Retailers this week suggested that losses caused by shoplifters rose by more than 30% last year – something that hardly suggests a nation in the grip of a recovery.

All in all, it is getting harder and harder to see anything other than a period in which growth is held back by miserable, deleveraging consumers (we are now saving more as a percentage of our disposable incomes than we have for over a decade, for example); rising taxes; a state of semi-crisis in the public finances; and an ongoing scarcity of credit.

Note that while our banks are less likely to collapse than they were, their underlying problems are little different to those of 2008.

Marks & Spencer's Stuart Rose says "you'd be a fool if you didn't think it was going to get harder." It doesn't seem to be a state of affairs that can support a rising market for long.

So that's the bad news. What about the good?

At some point, hopefully soon, the markets will fall back to reflect all these factors. They might fall so far that they will actually be cheap. Then, a real sustainable long-term bull market will finally be able to begin.

So I am very much hoping to be a proper bull by the end of the year – either because I've been proven totally wrong about the challenges facing the UK (and global) economy and everything turns out to be just fine, or because I have been proven totally right. I'm then hoping to stay a bull for much of the rest of this decade.

Meanwhile, if you don't quite believe the bear case, or if you just want to be invested without worrying about markets as a whole, you should take a cautious approach. Even if I believed in the 'V', I'd be taking profits on anything that did well last year and reallocating money into dividend-paying defensives.

At the end of last year, I suggested a couple of funds that can give you exposure to these: the Personal Assets Trust and the Edinburgh Investment Trust. Both still look good. They'll give you upside if the market keeps rising, with limited downside if it does not – and, most probably, a reasonable income either way.

• This article was first published in the Financial Times

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Published in Stock markets | More articles by Merryn Somerset Webb

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  • 1. Bob Roberts

    (12 January 2010, 11:24AM)  Complain about this comment

    Those BBC programmes last year about big falls in house prices seem like a distant memory now. Still no UK housing crash - if anything, they are rising.

    The FTSE seems destined to climb higher and higher and Moneyweek increasingly looks to be standing alone amongst the various financial magazines and websites saying that a crash will come both in stocks and property.

    Moneyweek could be right but it is looking as if the solution to the UK is to stuff the prudent, raise taxes on everything and simply continue bloating the public sector.

    I would like you to be right Merryn but, to be blunt, I doubt house prices will fall even a few percent in 2010. Ditto for the FTSE.

  • 2. Steve

    (12 January 2010, 12:31PM)  Complain about this comment

    Everybody knows that government intervention stopped the housing crash and QE rallyed the FTSE, but in 2010 I don't think they are going to be in a position to do that again and other situations will dictate the path they take. Moneyweek has been right in the past and I have seen nothing to doubt them again this time with them predicting house prices and the FTSE going down.

  • 3. Peter Jenkins

    (12 January 2010, 12:37PM)  Complain about this comment

    I think that Merryn is right to some degree and the state of the world and especially British economy should probably be reflected by lower house and stock prices. The world governments have either been very stupid or very clever in pumping money, that doesn't exist, into their economies. Whether this is the beginning of a boom or just patching everything up in the short term, we will find out eventually. If the latter I am surprised that Merryn thinks that a bull market is only a year away.

  • 4. David

    (12 January 2010, 05:44PM)  Complain about this comment

    I'm not a doomsayer but I do believe that this is the end of western capitalism. The continual growth of the economy over the last 20-30 years has had its foundation in debt rather than an expansion of productive capacity and new resources. The harsh truth is that their are no new resources and everything from oil to copper to food and precious metals is becoming more difficult to source and more scarcly shared amongst a growing population. Growth is slowing to a standstill and since our fractional debt based economy relies on growth something has to break. Expect the next 10 years to be the toughest in living memory and expect to see a boom in commodities (particularly energy, agri and precious metals). We will see significant inflation in essentials after a possible period of deflation of debt inflated assets (stocks, property etc).

  • 5. BillyBob

    (13 January 2010, 11:38PM)  Complain about this comment

    Thanks a bundle Merryn, now you would like a bullish decade!! I have been renting for several years on the basis of your and MW's views on the impending property crash. I see that you have now bought a property. I was deep into commodities in March 2009 but followed MW's advice, that it was a Chinese restocking bubble that would soon end and to take profits, I did. Since then those stocks have trebled in value. It seems that MW gets more like Investors Chronicle every day; and that, really is a pin the tail on the donkey publication

  • 6. PRO

    (14 January 2010, 01:11PM)  Complain about this comment

    "I'm not a doomsayer but I do believe that this is the end of western capitalism. "

    Ha Ha Ha. So your not a doomsayer. this a genuinly hilarious (honest not being sarcastic) statement.

    "I used to be indecisive once, but now I am not so sure." Sheffield University Rag Mag 1978

  • 7. PRO

    (14 January 2010, 01:20PM)  Complain about this comment

    In spring you were telling us to get out of this fools boom Now!
    In Summer you were telling us to get out of property before the crash.
    In Autum you were telling us to buy Gold the dollar was finished.
    Throughout you have told us to buy defensive stocks, if there was a crash somehow 5% return would offset 20% crash in prices.
    The market has as you admit still not crashed. Gold has had its moments but china thinks it overpriced.
    House prices continue to rise.
    And I still fail to understand why defensive stocks paying an admittedly reasonable dividend are sufficient compensation for a market which you keep telling us is about to collaps again.

    I think you all need to go away for a week retreat and brainstorming session and come up with something new, or at least persuasive.

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