Bull market throws up another hazard: information overload

`During that time of quiet that separated the 1987 crash from the Gulf War the flow of paper lessened. It was too good to last'
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The Independent Online
When I moved from working as a fund manager for one of the larger investment houses to the investment management department of a stockbroking firm, I thought I would be spared the piles of paper that used to greet me on my desk when I returned from our breakfast meeting each morning. If my hope was for less to read in a broking environment, I was wrong. Just as many trees were cut down satisfy broker/managers as had been the case in the rarefied atmosphere of a merchant bank.

For a brief period, particularly during that time of unnatural quiet that separated the 1987 crash from the Gulf War, the flow of paper lessened. It was too good to last. Gradually the paper flow has picked up. We must be in the bull market to end all bull markets. Speed-reading skills are needed as never before. There can be such a thing as too much information. We have it now.

Let me give you a taste of this week's offerings. Both Nationwide and Halifax are urging me to look at the performance of the housing market. One says growth is slowing, with the year-on-year rise down on June's figure. The other suggests house prices are as buoyant as ever. It is easy to see why the two are not making the same noise.

Halifax has a very broadly based business, stretching throughout the UK. Its contention that house prices rose by a mere 0.1 per cent during July reflects the very uneven nature of the house price recovery. London has been the leader in restoring values to the home owner. Gradually, we are learning from Nationwide, the good performance in the capital is spreading out to the home counties - but this is of much less importance to Halifax customers, who are buying houses the length and breadth of the land.

Still, Nationwide's contention that house prices rose by more than 10 per cent during the past year (Halifax could not even manage 7 per cent) shows just how strong the South-east has been. London actually delivered a 17.5 per cent increase, according to its survey, even though the rise now seems to be slowing.

Interestingly, the recovery in the housing market is delivering less of a feelgood factor than has been the case in the past. Arguably we do not need it. More than pounds 30bn has fallen into the laps of mutual society members, including Halifax borrowers, some of which has been recycled into the real economy.

Which brings me neatly on to the next pile of paper I need to read. As chairman of the investment strategy committee at Greig Middleton, there are reams of opinion to digest ahead of our regular monthly meeting - some considered, some speculative. Among the more interesting items for inclusion in this week's deliberations was the continued remarkable performance of the financial sector.

Can this outperformance continue? Well, we know that consolidation and rationalisation are likely, but it is the potential cost-cutting that is exciting some analysts. It seems 125,000 people are likely to lose gainful employment within this industry over the next few years. This, at least, was the contention of a consultancy which sees an acceleration in the restructuring of the financial services sector.

Actually the consultancy was quite optimistic - 125,000 jobs may go, but 113,000 are set to be created. The bad news is that those likely to find themselves as candidates for the dole queue are unlikely to fill the shoes put out by employers anxious to take advantage of new opportunities. According to Create, the originators of the report, those with creative, flexible minds are needed to deal with new customers and offer new services. It is the back-office jobs that will vanish.

Much of the bloodletting is likely to take place in the banking world. Banks have certainly been in the vanguard of the market rise. The emotionally charged 5,000 barrier was breached decisively this week. It joins many other targets in falling to the bulls as the global rush into equities continues. Is Nemesis waiting around the corner? It is a foolish forecaster indeed who states that no correction will take place, but there is no sign that a reversal of fortune is approaching.

In the US bears still outnumber bulls among professional managers. This suggests that there is still institutional liquidity waiting to go into the market. It is undoubtedly true that the supply of equity is contracting as more firms institute share buy-back programmes. Much of the same scenario exists on this side of the pond. Those managers brave (or foolhardy) enough to announce that cash is king have been taken apart by the market.

Of course, a trend is a trend until it stops. And stop it will at some stage. Meantime investors should remember that all the action is taking place in a small number of large companies. Look further down the list into the FTSE 250 and you will find prices are barely changed on average since the start of the year. Good value can still be found amongst mid cap stocks overlooked in the mad bull rush.

For those who hanker even smaller companies, it is worth considering Electra Investment Trust. A 20 per cent discount on "net asset value" must underestimate a business which has consistently delivered the goods. Not for widows and orphans, but at least a note on this company is unlikely to extend into the reams of paper with which I usually have to contend.

Brian Tora is chairman of Greig Middleton's investment strategy committee and can be contacted on 0171-655 4000.

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