News

16/09/2008 - "Meltdown Monday?"

The beleaguered banking sector takes another hit as equities flounder. Meanwhile the
price of oil falls below $100 a barrel.
The markets opened this morning on the surprise news of the Bank of America takeover
of Wall Street titan, Merrill Lynch, for $50bn. If that wasn’t enough, Lehman Brothers,
who had still been in crisis talks with Bank of America and Barclays on Friday evening,
ended 158 years of banking practice by filing for bankruptcy.
Global stockmarkets have reacted as one would expect in the current environment. We
have seen dramatic falls in most equity markets (Japan, China and Hong Kong are closed
today for a public holiday), driven primarily by sell-offs in the banking sector. A jittery
market has a tendency to overact to news, both good and bad. It is too soon to draw
conclusions about today’s events. Once the dust settles we will have a clearer picture.
We are all aware that the banking sector has been in trouble for some time and the market
was expecting at least one more high profile collapse before things got better. Lehman
Brothers has spent the last few weeks courting potential suitors, to no avail, and so its
demise was probably inevitable. What is interesting, though, is that the Federal Reserve
may have decided to draw a line at further intervention following the bailout of Fannie
Mae and Freddie Mac. The question is, why stop here? Perhaps the Fed felt neither
Lehman Brothers nor Merrills were important enough to prop up with public money. This
decision could change the landscape and the market is now looking around for the next
potential basket case. There may be little surprise should another bank go to the wall.
However, the market is less prepared for any potential contagion into other sectors.
Interestingly, whilst attention has been focussed on the banks and equity markets, the oil
price has fallen below the $100 a barrel mark without fanfare. This is an important
threshold and a sign that the threat of inflation is subsiding. Central Banks can now turn
their attention to stimulating growth and an interest rate cut in the US or UK must surely
be on the cards soon.
We would like to reassure you that our portfolios have no direct exposure to either
Lehman Brothers or Merrill Lynch. We have been prepared for periods of short-term
volatility in equity markets and in such circumstances it is important to keep an eye on the
long term and maintain focus on the investment objective. Against this tumultuous
backdrop more long term investment opportunities are likely to arise. In the short-term,
there is little sense in panicking.
John Husselbee
North
September 2008
North Investment Partners Ltd is an Appointed Representative of Neptune Investment
Management Ltd which is authorised and regulated by the Financial Services Authority.
This document is directed only to persons who are professional investors, market
counterparties or intermediate customers. Persons who do not fall within these categories
should consult their independent financial adviser or other authorised intermediary. The
content expresses the views of the contributor and should not be construed as specific
advice to individuals or as an enticement to invest in any of the strategies mentioned.
Recipients of the document are reminded that investment may only be made on the basis of
the information contained in the Prospectus relating to the particular Fund or Company in its
final form and therefore this document must be read in conjunction with the relevant
Prospectus. The Offer is not being made directly or indirectly in any territory where its
distribution is prohibited by law and copies of this document may not be distributed in or into
any such territory. Issued September 2008.

<< back