21 October 2019

Memories of times past

Shares have been in a rather subdued mood recently, though sterling and the more domestically focussed FTSE 250 Share Index were a little perkier initially.

Fears that the apparent progress achieved with Dublin and thus with Brussels may yet founder if the DUP and hard-line Brexiteers in Parliament fail to support Boris Johnson’s proposals have seen initial enthusiasm waver. By the time you read this the situation could well have changed dramatically. We certainly live in interesting times.

Not that Brexit is the only game in town. The news that Neil Woodford is to close his eponymous fund management business just five years after its launch, brings to a close a sad saga which has seen value attrition for many investors. The trigger was his removal as manager of his Equity Income fund, which will be wound up early in 2020. If there is one lesson to be learned, it is that illiquid investments do not sit comfortably in an open-ended fund where investors should be entitled to encash at any time.

Geo-political issues once again loom large. America’s imposition of sanctions on Turkey emphasises how tricky a place the Middle East continues to be. This is another sorry state of affairs and one that could have severe implications for world peace. The fact that the US and Turkey are both members of NATO adds a further complication. So far markets seem more concerned over trade issues and economic growth, though, preferring to ignore these heightened tensions. Even more remarkably, oil has not reacted to this latest development, but then there are long term downward pressures on this commodity around as well.

This week marks the anniversary of the hurricane that swept through south east England 32 years ago. It resulted in the closure of the London stock market on Friday 16th October as travel disruption meant that insufficient people made it to their desks to allow trading to take place in an orderly fashion. This was unfortunate as it meant our stock exchange was unable to react to a major setback on Wall Street which started on the Thursday and continued when our market was closed. The consequence became known as Black Monday – 19th October 1987 – when the London market shed a quarter of its value in a single day.

I recall this all too well. It did lead to measures being introduced aimed at preventing such a sharp decline occurring again as falls were exacerbated by a disconnect that developed between the cash and futures markets. To say it felt uncomfortable is something of an understatement and my personal experience was not made any easier by the damage the hurricane had wrought on my home. In the end the sharp fall was recovered and nothing of major significance arose to account for the panic that had ensued. Markets are not always rational.

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