Stoicism in the face of a toxic storm

Published on Friday 19 September 2008 21:52

HUGE falls in markets, the collapse of Lehman Brothers, emergency support for AIG, the rescue take-over of HBOS by Lloyds TSB, massive central bank liquidity injections, an FSA ban on short selling and a dramatic intervention by the US government to nationalise toxic debt: shares soar!

Has there ever been a week like it? Not in living memory, and not a week anyone wants to go through again.

Investor nerves have been tested to destruction and our IFA of the Year competitors have had to endure a storm whose ferocity has stunned everyone.

This is, as Alan Greenspan observed this week, a once in a hundred year event of the type that investors dread. A nightmare came true.

But now comes a "rescue rally" on the back of unprecedented action by the US government that should lift many of our competitor portfolios well off the bottom.

If we have indeed stopped the flight of confidence there is now some hope that a semblance of stability could return.

Many shares – by no means confined to the banking sector – have been discounting the worst. With the prospect now of lower interest rates, the damage could be confined to a recession rather than something worse.

But it will be recession with a long tail – with earnings set to be subdued for years.

Our competitors have held up so far with great stoicism. Let's hope that the dramatic steps taken to halt the flight of confidence do stick and that equities start to be priced again on the basis of the world surviving this epochal storm.

What price now a new fund – the White Knuckle Ride unit trust – and with short sellers banned for life?