A NICE era is over!
Time to sell in May and go away -- or stay away?
In February 2008, AiLS looked for signs of an upturn only to see hopes dashed by a sharp, frosty sell-off as the global credit crunch took a further toll of investment hopes.
After financial markets reached a low point in late March, by late May shares of mining companies peaked on the back of record gold prices while speculative hedge funds investing in energy reaped the benefit of spiralling prices of crude oil with pundits predicting a possible $200 per barrel.
Like the property boom before it, irrationally escalating prices for non-renewable energy resources are probably unsustainable in a stagflationary environment and threaten a recession -- or worse. In the words of the Governor of the Bank of England, Mervyn King, "the decade of Non-Inflationary Consistent Expansion (NICE) is over." Tight credit and rising inflation will force a rebalancing away from consumption and borrowing into production and savings.
It's a puzzle how this could happen smoothly given the burden of red tape on manufacturing and escalating costs of distribution. So-called 'green' taxes on air travel, vehicle excise duties on motoring and haulage, heaped on top of soaring prices for automotive fuels illustrate Lucq's 'law of unintended consequences' in crippling the productive, supply side of the economy thereby triggering a recession.
Road hauliers, engines of the logistics sector, became the front line of protesters in their struggle to keep their vital businesses afloat amidst intense competition. The global village marketplace suddenly seems to have been transformed, geographically, into a more remote, disconnected space as supply lines linking producers with their customers break down under pressure from sharply rising transport costs, seen from the standpoint of politically motivated eco-bandwagons as a desirable outcome
Green policies prescribed for an unproven gospel that the world can be rescued from long-term global warming are scarcely affordable even when the economy is thriving. But in current circumstances industry needs carbon rationing like it needs a hole in the head. As Nigel Lawson, once Chancellor of the Exchequer and author of a hard hitting new book, "An Appeal to Reason: A Cool Look at Global Warming" comments, "better to do nothing than to do something stupid."
In May, a traditional time for a market sell-off, cautious investors feared the commodities bubble could burst while speculators flee lemming-like from what had been a credit crunch towards an economic cliff-edge, leaping down from which they may plunge into a full-blown slump the depth of which has not been plumbed since the 1970's. Banks, real estate, builders and household goods sectors look distinctly shaky, while engineering and electronics are in favour. Pharma and biotech have bucked the trend, but it's a mixed bag where winners just about outnumber losers.
Businesses exposed to agriculture stand to gain most from soaring food prices while genuinely eco-friendly businesses may re-emerge. If it's prudent to sell in May and go away, remember to come back by September and keep in touch with AiLS during the silly season, a summer of discontent. Meanwhile, pharma and biotech face up to the challenge of helping to deliver unmet healthcare needs and demands of an expanding and aging population in a global marketplace.
Keywords : Lifescience investment, Pharma, Biotech, Agriculture, Non-inflationary Consistent Expansion, Commodities bubble, Logistics costs, Automotive fuel, Taxation, Recession
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