SSE sell-off puts some spark into club profits as we choose to ignore US debt concerns

THE Investment Club's unit price had the rug pulled from under it last month as government debt markets adjusted to a world without the US Fed's QE2 after 30 June, 2011.

In anticipation of the 7 July 30-year bond auction, the US long-bond yield climbed from 4.17 to 4.4 per cent by the start of July. UK and US government debt prices fell, bringing the club's unit price down with them to 2.71, a fall of 6p. It was worrying when US president Barack Obama said the different sides are still far apart in budget talks aimed at averting a default on US government debt. One must never underestimate the fallibility of those in high places.

Take for instance Tim Geithner. He was one of the "high heid yins" at the International Monetary Fund at the beginning of the last decade and is now US treasury secretary. He signed off the IMF's post-mortem examination of the Argentine debt meltdown, entitled Lessons From The Crisis In Argentina. There were repeated IMF bail-outs for Argentina, piling debt on debt.

The IMF concluded in its post- mortem that when "debt dynamics are clearly unsustainable, the IMF should not provide its financing. To the extent that such financing helps stave off a needed debt restructuring, it only compounds the ultimate cost of such a restructuring". (Substitute US Fed for IMF.)

Where in the US debt debacle is Geithner applying these "lessons"? Taking Karl Marx's famous dictum that history always repeats itself, once as tragedy, second as farce, the US could be at the second stage. The farce would come when China dictates international policy to the US.

This it could do simply by threatening to withdraw China's support of US treasury purchases. America used the same policy stick to truncate the UK's world influence in the Suez crisis of 1956.

Also, as the US economy deteriorates, a third round of quantitative easing is being whispered. If it happens, then history will name it QEB - for bust.

On 2 June, 2011, the club's other investment, Scottish & Southern Energy (SSE), hit its 14 exit limit and our holding was sold. This gave the club a profit of about 37 per cent in 197 days, if you include the dividend of 120.06 we received.

In an attempt to repeat the success, an immediate buy limit was placed at 12.97, in the hope that the share price would fall precipitously and the club would repurchase shares.

Unfortunately, at the time of going to press this strategy had backfired as the price, after dipping to an intra-day low of 13.43, continued to rise.

While it is sickening to see the price climb away from us, it is into a big supply area and it would be against all the rule books of investing to jump into a share after it has had a long and profitable rise.However, should the share price have a large pull back before the shares go ex- dividend, then the club will re-enter the market.

The game plan for the club this month is to abandon emotions and party through the financial inadequacies of Obama and missing out on SSE's dividend.

But, be ever vigilant on the club's investments and react to any adverse price change alone.