Laurence Olivier, single-handedly frightened a generation away from the dentist with his portrayal of the Nazi torturing dentist in the 1976 film “Marathon Man”. He only needed Dustin Hoffman to answer the one question;
Is it safe?
Even if you have never seen the film before the picture above shows how frighteningly convincing Lord Olivier’s character was. Now if John Schlesinger was to remake the film today, I think I could play the part of Dr. Christian Szell with equal conviction. But I would want Ben Bernanke in the chair with his mouth open so I could really get into character and give an Academy Award nomination performance.
Is it safe Ben?
Bernanke, the central bank chairman suggested the Fed’s asset purchase programme may begin to taper off later this year if it sees further improvements in the economy. And from that moment on the markets have been up and down like a fiddlers elbow, but all the time steadily falling from their peak.
There is no doubt that the money the Fed has pumped into the US economy has helped to prevent the Financial Armageddon many naysayers were suggesting. In my October 2012 Investment Review as we committed heavily to the markets I said;
There is a phrase across the pond which says “Never bet against the Fed”. All this cash coming into the markets will now drive stockmarket returns higher. We are in.
When the FTSE 100 shot to 6500 I decided it was time for a break as we had made such a great profit and I did not want to risk our returns and so in mid March I sold half of all clients share holdings. When the FTSE 100 then continued higher I got more and more uncomfortable, feeling that I may had made the wrong decision. But today at 6300 points that decision looks like a good one again. So
Is it safe Ben?
We know the answer, it’s never safe. World markets will drop as the Fed withdraws cash, probably starting in September. But it will only withdraw the cash when the US economy can stand on it’s own two feet and has no need for the Fed’s crutches anymore. So paradoxically if the Fed withdraws the cash then they feel it is safe. The markets are afraid of this change but will surely embrace it as the prospects for shares will get better as economies around the world continue to recover.
We will continue to watch the markets and will commit more to shares if we see opportunities. We don’t have a crystal ball, but consensus suggests the world’s markets will finish the year much higher than here, with the FTSE 100 reaching 7000 for the first time. But for now let’s not forget it’s summer and markets seldom rise when the sun shines in the Northern Hemisphere.