After the bull run is over...

It does well to remember that, even in the up-beat United States, shares can fall as well as rise

Is the great bull run in America over? There are those who think so. Professor Tim Congdon, Chief Economist of the Gerrard Group and a former Treasury wise man, is suggesting that US equities are between a third and a half too high. In other words, a fall of 5,000 points on the Dow would not be unreasonable. A set-back of that nature would be most uncomfortable.

There are reasons for being worried about America. Recent economic data suggests that the trade deficit is uncomfortably high, at around 4 per cent of GDP. The Fed is upping interest rates, taking back some of the ground given up during the autumn of last year when the state of equity markets worldwide was causing concern. Certainly, with a tight labour market and consumer spending remaining robust, you can understand their caution. The result has been higher bond yields and the belief that Treasuries have further to fall.

We should never forget that markets are driven by supply and demand. Demand had been coming from an American public which was salting away the fruits of a buoyant economy. This helped fund the bull market, making them feel even better off, so they took great delight in spending their stock market profits, which in turn helped the economy. But it didn't arrest the rise of US shares because other buyers were waiting in the wings.

So firmly has the mantra of shareholder value taken hold that merger and acquisition activity and share buy backs eliminated 3 per cent of equity supply last year. Corporate America is buying. Then there are foreign buyers. American shares now account for around half the value of all world stock markets and in the past you underweighted the US at your peril. But this was precisely what many non-US managers did. Bringing the States up to weight, often at the expense of underperforming Far Eastern markets, has kept demand up just when domestic investors were gently pulling away from a market that made them so rich.

Could this now all change? Tim Congdon believes so and reminds us that even Alan Greenspan, who could go down in history as the banker who beat inflation, stressed how expensive US shares were some years ago when the market was much lower than now. It does no harm to remember that shares can fall as well as rise and that nothing, even the strongest of bull markets, lasts forever.

But before you rush to the telephone to dump your remaining shares, let me counsel a little caution. There is a natural appetite for investment and, even though this might abate during a period of market turmoil, buyers will eventually emerge from their bunkers to gobble up cheap stock. Even more important, the relationship between markets and the economy is now firmly established, so you can expect the Fed to act if market meltdown looks imminent. And if you don't believe me, remember that is precisely what the level-headed, Mr Greenspan has already done. Twice.

Still, the market has now moved comprehensively sideways for the best part of half a year and shows no sign of breaking out on the upside. This will be making life tough for the index trackers, but that is probably not before time. The bull market may be over, but that is not to say a bear market has begun. The dangers in the US market (for they surely exist) must be more that Mr Greenspan is replaced by a central banker less determined to keep the lid on inflation and that the American economic miracle suddenly comes to an end.

The rest of the world is coming out of the Asian led recession quite nicely, a prediction that is confirmed by commodity markets.

So the message is probably to sit on your hands this autumn - not good advice so far as we brokers are concerned, but it may do your personal wealth no harm.

Brian Tora is Chairman of the Greig Middleton Investment Strategy Committee

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