Standpoint

One facet of the welcome rise in global stock markets has been a ‘dash for trash’. Think of banks and housebuilders, which, although they were probably oversold, have now become overbought. Banks rose 33 per cent in April and individual shares in both sectors rocketed from mid-March to mid-May.

After more than 10 years editing Money Observer, and commenting about pension policy in this space, I am no longer surprised at the government’s utter failure to devise a sensible pensions policy that: (a) satisfies the need to reduce the State’s social security burden in the future by getting people to do it for themselves; and (b) improves savers’ confidence in private pension provision after years of plunging returns, broken promises and regulatory failure.

Why gold’s a good two-way bet

The chickens are coming home to roost as the full ramifications of the financial crisis become more clear. We are witnessing why laissez-faire capitalism – promoted by the Conservatives, championed by Labour, enacted by bonus-driven bankers and overseen by a complicit regulator – is simply not a system that does society any good in the long term.

One of the biggest conundrums facing investors in 2009 is identifying the asset classes that will lead us back to prosperity (assuming Armageddon is not the outcome to the global financial crisis). As discussed elsewhere in this issue, and in last month’s Wealth Creation Guide, corporate bonds are set to lead the way.

This year – we predict with some confidence – will be easier for investors than 2008. Equities will recover, but when and by how much is anyone’s guess. Jeremy Batstone-Carr, head of research at Charles Stanley Stockbrokers, sums up the dilemma: ‘The difficult bit will be spotting the turning point to get out of defensive asset classes and migrate into riskier assets.’

We are in the midst of a seismic upheaval in the global financial system and a nasty recession looms. The collapse of US bank Lehman Brothers as we went to press last month was dramatic, but it pales into insignificance compared with events over the ensuing five weeks. The law of unintended consequences, a direct result of allowing Lehman Brothers to go to the wall, has been applied to devastating effect, with some savers and all equity investors losing big time.

The credit-crisis chickens are still coming home to roost. Market-watchers may have been shocked by the federal bail-out of US mortgage lenders Fannie Mae and Freddie Mac. But that was nothing compared with events that happened barely a week later. Lehman Brothers, the US investment bank, bested its erstwhile peer Bear Stearns by filing for bankruptcy, and Merrill Lynch – aka the ‘thundering herd’ – was corralled through the gates of the Bank of America abbatoir.

When a respected manager who runs more than £1 billion in a single investment trust answers an interview question with the comment, ‘I regard that as a personal insult’, you would expect the interview to be over. But I am pleased to say that I was only halfway through my chat with Graham Birch, head of the natural resources team at BlackRock Investment Management, and that I had not personally insulted the man.