FWIW IMO the current economic environment is similar to those faced by the UK in the late 1960s and early 1970s.
The stock market action of the last few days does'nt look very clever.....I personally did not expect to see such a big decline in a few days. As stated a few weeks ago I did acknowledge a correction phase and felt the markets would push up to new highs soon after.
Now I am not so sure......It is too difficult to call what will happen next as it depends on a number of things happening in terms of the UK politics, greece etc
When an oversold market fails to rally and is then sold off further it does not look good at all. Just as so when the Dow fails to rally on good news such as higher job numbers that beat expectations.
Hats of to people like Tournesol who has managed to go into 100% cash, that takes a lot of courage....One unknown is how many more there are like him who have done and will do something similar. After all over the last decade people have been burnt from 2000 and then 2008 and each time I have no doubt there have been a number of people who have said if the share goes back to x I will sell only to see the share drop drop and keep dropping. But on this action they may just bite the bullet and sell up therefore we may not get relief rallies but straight declines.
I have always held the view the March09 Rally was a cyclical bull in a secular bear and I have always felt another big down leg was coming and then second decline will catch out the most people and the longer the cyclical bull lasted the more people it would hurt as people tend to buy on optimism and when times are good or look to be getting better.
The only sector I can be bullish is Most commodities...that includes Oil. And in such sector I would only stick to the large companies.
Large companies 95% of the time recover, they get through recessions.
The big risk is holding small companies that are likely to go to the wall. Crap businesses in a bullish sector can STILL…
More on 1974 Stock Markets and Hung parliament..
For days after the General Election of February 1974 the Tory Prime Minister Edward Heath clung on in Downing Street, writes Peter Oborne. He could not bear the idea of losing office.
Even though he had secured fewer seats than Harold Wilson, his Labour opponent, Heath hoped that a pact with the Liberal leader Jeremy Thorpe, later to be acquitted of conspiracy to murder his homosexual lover Norman Scott, would provide the solution to his problems.
Heath offered Thorpe the post of Home Secretary.
But after a weekend of supposedly secret and increasingly farcical negotiations, all talks broke down. With deep reluctance and total lack of grace, Heath was obliged to leave Downing Street.
Read more: http://www.dailymail.co.uk/news/election/article-1274798/UK-ELECTION-RESULTS-2010-Clegg-emergency-Lib-Dem-summit-deal-Tories.html?ITO=1708&referrer=yahoo#ixzz0nKg7RJRR
The abortive Lib/Tory pact was the prelude to the most disastrous and shameful period of British post-war history.
The stock markets crashed, and so did industrial production. There were violent riots in the streets and many public services broke down. Inflation soared out of control and the savings of many honest and hard-working people were destroyed.
There was talk of socialist revolution, while senior Army officers, intelligence officers and industrialists held secret talks to discuss the possibility of a military coup.
A second election, held in October 1974, did nothing to resolve the situation because it left the balance of political parties in the House of Commons unchanged.
In due course, the International Monetary Fund was called in to help Britain resolve her chronic problems. Not until Margaret Thatcher achieved an outright majority in 1979 was Britain able to secure effective political leadership.
This weekend, history is eerily repeating itself. Once again we have the spectacle of a Prime Minister refusing to accept electoral defeat.
Like Edward Heath, Gordon Brown is making the classic mistake of confusing his personal ambition with the national interest.
Like Heath, Brown is trying to stay in Downing Street by striking a deal with the Liberal Democrats. And, as in 1974, political crisis has struck at a time of economic calamity.
The stockmarkets have fallen 10 per cent in the past week, while sterling is in freefall on the international currency exchanges. As in 1974 Britain faces a financial catastrophe.
It is impossible to overstate what a disaster the result of last Thursday's General Election has been for Britain. It means that alongside an economic crisis, we face political paralysis. One might call the situation a 'perfect storm'.
A second General Election is certain to be called within months, but, as in 1974, there is no guarantee that it will be bring clarity to what is in danger of becoming a desperate situation.
But there is also a more urgent short-term problem. Though Gordon Brown remains Prime Minister technically, and continues to occupy Downing Street, he has lost all authority.
If this political chaos is unresolved on Monday, the markets will turn inexorably on Britain, just as they have turned on Greece over the past few weeks.
