City Eye: Even hedge funds don't like it when the market gets brutal

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The Independent Online

Time to ignore a few elephants. The investment managers and big-time business managers I met last week were all bravely trying to look forward. Anything would do, it seemed, rather than take any cognisance of the jellified mass that is investor confidence in equity capital markets.

The wild oscillations in Northern Rock are far from the only case in point. With that stock up and down like the proverbial vicar's nightshirt, the hedge fund managers are indulging in an orgy of volatility. When quoted hedge fund RAB Capital starts bleating about the disorder and naughtiness being caused in this market by other hedge fund managers, all you can do is smile. It makes you wonder if the real meaning of such protests is that some funds win and others lose. The losers tend to talk about disorderly markets.

Sugar company Tate & Lyle got a caning for a fairly modest profit warning. The reason? The markets are viciously unforgiving in these times.

It makes a little more sense that companies associated with housing, especially US housing, have suffered. One such is a stock I've been watching for some time. Wolseley is a well-run multinational with all kinds of businesses all over the world. It had a bit of a struggle with its French division, but has consistently increased dividend and profit year on year. Management, in the form of past chief executive Charlie Banks and current supremo Chip Hornsby, have long been cross with the markets for not giving the company credit for some impressive figures. The growth came from the US housing boom. The humour at Wolseley HQ along the M4 from London cannot have lifted any.

If management was unhappy as the stock touched 1,400p, Friday's close of 826p must seem a cruel, but not unusual, punishment. No reward on the upside and a brutal kicking on the downside. Nevertheless, I count no fewer than eight strong buy recommendations from brokers at the moment, with just one strong sell.

Following on from last week's piece, which featured the search for George Soros Mk II, expect the winners in the Northern Rock fiasco to be identified by the losers. Paulson & Co, the US hedge fund manager identified as a winner, has, I'm told, seen funds grow from $11bn (£5.5bn) to $20bn.

Democratic dip

What will the markets make of it, in the short term at least, if the new US President turns out to be a Democrat. Hillary Clinton is putting on a strong showing and might well get the nomination and go on to win the election. Lord Chadlington, founder of quoted communications group Huntsworth, believes the Demo-crats would walk it if they could persuade Al Gore to return ,with Barack Obama as running mate.

And the short-term result? A downturn in share prices, for sure. There's no moral to be drawn from this but the markets don't like Democrats or the "left". When John F Kennedy was assassinated, Wall Street rose. Stockholm did the same when socialist premier Olof Palme was shot. Gruesome, but there is nothing like the ruthlessness of the decision whether to buy or sell.

Those were the days

There are more and more people making that very decision. There's a very interesting study of privately owned assets under management across the world. It's published this week and I am sworn to secrecy. But I can tell you that the global figure of what we have invested is not unadjacent to $100 trillion. The US – surprise, surprise – has the vast majority of households with more than a million dollars in assets. But, of course, these surveys have a long publishing lead time – a lot of those US assets are doubtless already worth considerably less now than they were when the research was done.

martin@martinfdbaker.com

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