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David Kempton: FTSE to test 5,000... before steaming ahead

It's time for Europe to decide between ruthless austerity and printing more money, says experienced investor David Kempton.

David Kempton: FTSE to test 5,000... before steaming ahead

On the first day of the long Jubilee weekend I read the papers early in the morning, and felt it was probably the most depressing financial news of recent years.

Among the litany of catastrophe we had Chinese growth downgrades; US job figures well below expectations, leading to a 200-point fall in the Dow 200; disappointing UK output figures; and even Brazil had economic downgrades. We’ve not even started on Europe, where Greece is imploding and Spain still cannot accept its situation. 

France has an untried, raw left-winger running the country, and they have started buying houses in London already, competing hard with the Greeks. Even Germany has reported downgraded car sales, and oil has dropped below $100 a barrel.

Whitehall's 'privilege days'

I despair even more at the news of officials in Whitehall being given an extra 'privilege day' on top of the weekend’s double bank holiday.

I, meanwhile, headed to Manchester on Tuesday (Whitehall’s second holiday of the weekend, one more to come) for the board meeting of a recruitment company, since the executive directors are too involved running the business to be able to take more time off. 

The board are all royalists, but running 500 temps and placing 20 people into permanent jobs every week is very hard work in today’s Britain, and they simply cannot afford to spend any more time away from the business. 

The dilemma at the heart of Europe

Europe now faces the dilemma of German chancellor Angela Merkel imposing austerity, which is good for bonds (at zero yield now in the stronger economies) but bad for equities, or France and the weaker southern neighbours printing money and going for growth, which is bad for bonds but good for equities. 

Toss a coin and maintain a very close eye on your portfolio, I suggest. 

Changes to my portfolio

The professionals are doing the same. I have adjusted my portfolio, with my two largest holdings by a country mile cautiously managed funds. I have increased my holding in Hawksmoor’s Vanbrugh , for whose management company I act as a director, but there are more than 100 others in the sector to choose from.

I don’t have the time to watch the news 24/7, but they do, so it is absolutely the right time to hand management to a professional who will be on the job full time, able to adjust instantaneously to fast-changing circumstances.

Also I have increased my holding in dollar index linked bonds (Tips), which I have bought through the CG Asset Management Dollar Fund .

Taking a major hit from Lamprell

I remain bearish about the rest of this year, but am very bullish for 2013. Once this European uncertainty has passed the world will refocus and print money.

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36 comments so far. Why not have your say?

Geoff Downs

Jun 06, 2012 at 12:09

I think Mr Kempton is going to be disappointed.Nothing in the article explains why equities should rise, apart from printing money. Would he say printing money so far led to stock markets rising?

We look to be in for deflation, low growth and reduced availability of credit.

The problems of debt are not being tackled. We should all look at Japan to see the dangers but Mr Kempton seems to think it will all blow over and we can go back to normal!

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alan franklin

Jun 06, 2012 at 12:15

But when the ultimate crash comes, and money printing creates the inevitable hyper-inflation and destruction of all fiat currencies, you'd better be holding gold!

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Adam Murza-Murzicz

Jun 06, 2012 at 12:16

Dream on Mr. Kempton..

Let's face it, Citywire is just a mouthpiece for fund manager who want to talk up their books.

I wonder how the punters who have followed the implicit recommendations made by the "fund managers' in these columns have fared. Poorely I suspect.

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Jun 06, 2012 at 12:20

Another soothsayer.

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Jun 06, 2012 at 12:25

If David Kempton is as well-informed this time as he was in his last post, it would be very sensible to ignore his opinions and suggestions.

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Mike Cooper

Jun 06, 2012 at 12:37

I wish our current ministers would reviewed events that happened in the 1930's. Ed Balls 2010 Bloomberg's speech was correct then when the Tories were crowing about austerity. Events have proved him correct. Oh yes he was also right about the Euro. His judgements are sound unlike the current Chancellor.

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Rickenbacker Al

Jun 06, 2012 at 12:45

Oh dear Mr Kempton, you need to adjust your skirt - your biases and bitterness are showing......

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Jun 06, 2012 at 14:04

June is never a good time to make stockmarket predictions. The old cliche, "Sell in May and go away" holds true in my book.

Most people have more important things to do, like planning holidays, outdoor activities, and spending time in their gardens.

This year even more so, because you have the added distractions, of the Queen's Jubilee Celebrations, and the Olympic Games, with horse racing, and tennis from Wimbledon, putting on supporting acts.

Instead of describing the above spectacles as distractions, maybe the term attractions would be more appropriate.

There's no doubt about it, the televised images of these events, beamed into the homes of hundreds of millions of viewers around the world, showcase "little England" as a never-never land that could only exist in fairy-tales.

The most memorable impression of the Jubilee celebrations (for me) was summed up by Douglas Hurd, this morning on breakfast TV. He said people came to London to see the Queen, because they wanted to, not because they were told to.

Small wonder that London property values are rocketing. Nowhere else on earth will you find such an intoxicating mix of ancestral heritage and multi-culturism.

So what does this mean for the long term prosperity of the UK. I think it says a lot. Tourism should flourish (despite our querky weather) and people will have greater confidence in our exports.

There is of course the European quagmire to consider, we cannot expect to emerge unscathed, but hopefully we can skirt around it. The single currency project looks more and more like a quicksand. For this reason I shall continue to hold cash (sterling) for the time being and I am not going abroad for my holidays this year.

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Jun 06, 2012 at 14:50

Any economy de-leveraging from historically enormous debts, and this includes UK, Europe & USA, like any indebted human-being , and with broken banks that aren`t fulfilling their basic functions of transmitting savings to lenders & with most of the wholesale money markets paralysed, cannot hope, in just one year, 2013 as Kempton says, to be back on the growth path again, and neither will markets move until such faint shimmerings of any such growth is detected!

We are in a long and lengthy L-shape for the economy! Printing money may be a short-term panacea but then get ready for exhorbitant inflation & subsequent interest rate rises that`ll choke-off any economic growth!

We are in the mire!!!

"Go east young man, go east"!!!

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Geoff Downs

Jun 06, 2012 at 15:04

I don't see how inflation is coming about anytime soon. Look at Japan for an insight into the future.

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Jun 06, 2012 at 15:08

Agree with Mike Cooper - Ed Balls has been proved to be spot on with his predictions at almost every step since 2010.

'Austerity' as an economic policy isn't working and, if anything, is merely exacerbating the situation.

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Geoff Downs

Jun 06, 2012 at 15:25

So you just wan't more debt. There needs to be a new approach, neither austerity nor more debt will solve this problem.

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Jun 06, 2012 at 15:47

The pesent version of capitalism is dead and

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Jun 06, 2012 at 15:50

Last time, it wasn`t more debt that pulled America out of the depression, started in 1929, or Keynesianism, despite what its proponents like to say - its complete Balls!

What pulled America out of the depression from 1938 onwards, was the re-armament of Europe & the preparation for the 2nd World War, started in 1939, and acurate to say that the markets didnt get back to a "bull stage" until the mid 1950s!

Wait till the USA elections are over & lets see whether preparations for another war, possibly over Iran or Syria or a host other places in the world, will see a boom in 2013! Maybe Kempton is right!!! Does he know something? lol

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John Thorley

Jun 06, 2012 at 15:53

Economically it's fascinating if not a little worrying.

We cannot go on passing these huge debt burdens around in the hope they'll some how disappear. In the end there is no doubt the Euro will collapse under the strain, I think somewhere between Sept 2012 and March 2013.

Hopefully the powers that be have been secretly planning for it's demise. They cannot be explicit about this because that would 'cause' a collapse and the markets would move faster than they could rectify it.

What would be sensible is not for Greece or Spain to leave the Euro but for Germany, France and the Benelux countries to start a new currency and allow the others left in the Euro to devalue it.

A controlled break up of the Euro would be painful but it would be infinately preferable than a market enforced collapse.

The thing I don't understand is why the people in authority who are supposed to be very well educated do not understand why we need exchange rates and the value of economic freedoms across different countries. Most A level economics courses begin with this stuff, it's the first thing you learn even before the circular flow of income.

We're no better, we would have joined the Euro had we not had a recession early in the 90s that forced us out of the ERM. Was it Leon Britton who came on the telly crying in his beer that it was a very bleak day for the UK that the money markets have forced us out? 'Bleak' ha ha it was the best thing that ever happened!

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an elder one

Jun 06, 2012 at 16:13

Ruminations; a waste of breath!

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Jun 06, 2012 at 16:24

@ John Thorley – our politicians may well be highly educated but we currently have a Prime Minister – recipient of the best education money can buy, who still puts ‘LOL’ on his text messages and spends his spare time playing computer games. Compare that with previous generations of both political colours. At 24, Winston Churchill was escaping from a South African POW camp and Dennis Healey was a beach commander at the Battle of Anzio. At 24, our Prime Minister was fresh from trashing restaurants with his Bullingdon Club chums and just starting work in the wild and wacky world of PR.

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Tony Peterson

Jun 06, 2012 at 16:37

Perhaps FTSE might just want to test 6000 first.

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Jun 06, 2012 at 17:40

I like it when people make testable predictions and we've even got some timescales. Page bookmarked.

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Rob Walker

Jun 06, 2012 at 18:55

Well David, what price did you sell Lamprell for? The market seems to have over-reacted to the bad news that came out. After all, profits this year may be impaired but looking ahead the order book is healthy and (hopefully) they won't make the same mistakes again. As you stuck your kneck out so will I....Lamprell to be back up 100% to 200p + within 6 months. Buy now!

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Raymond Hurley

Jun 06, 2012 at 20:36

I agree completely with S-ville.

Cameron and Osbourne are not fit to run a sweet shop,let alone the Conservative Party or Great Britain.

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gordon gray

Jun 06, 2012 at 22:25

I have never heard of this guy Kempton but I certainly would not want him on my board or advising me or my friends on matters economic. I suggest that he waits until the FTSE has dropped to 3000 before he gets too euphoric.

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Jun 07, 2012 at 07:57

@Gordon Gray

It seems to me your scathing comments regarding the author's credentials are somewhat premature. If you had been reading his series of articles over several months I'm sure you would come to a different conclusion.

To me it's rather like, "Oranges are not the only fruit" in other words you have to understand the writer's background and experience before you can appreciate the message.

When I first started reading this column I too had difficulty in comprehending how I could utilise the information. What I didn't understand was the broad range of investments that DK holds. Now that I have grasped that, I am able to scan the text and just pick out the bits which are particularly pertinent to my situation.

As I said before, I don't think now is a suitable time to be investing in equities, but my attitude to risk is probably much more conservative than his and after all he has got to write something about his thought process.

Incidentally I have personally benefitted from some of his share suggestions. The most notable was a small anthracite miner called Energybuild. I particularly liked the uniqueness of the mine because the overburden consisted of saleable building stone and not the more usual fireclay. Anyway the company was merged with its larger partner, Western Coal Corp, which was itself taken over my an even larger American corporation.

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Jun 07, 2012 at 08:53

Mike Cooper ......ARE YOU ON THIS PLANET!

Really Educate yourself man and please stop reading the Mirror

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david kempton

Jun 07, 2012 at 09:03

thanks for all interesting comment and opinions which always appreciated. To say it's all rubbish, without giving another view, reminds me of the hackneyed story of the yokel, who when asked the way, said "I wouldn't start from here"

Rob, you could be right on Lamprell, and if we were in touch we could have a small wager, but what's different now in order book than it was before the profits warning? Also the insiders who had their £1.7m sale officially reported14 days before the profit warning, didn't know (that's inferred) which smacks of lack of control. I was an international engineering contractor for 15 years and it's a high risk/reward business. See Cape also. I have a colleague who has just bought the stock too, but I am happy to wait a while on the sidelines and follow announcements, being badly shocked now

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sarah b

Jun 07, 2012 at 09:21

I have foowed David Kempton over the years and acted profitably on some of his tips.

Some of the comments in this column are stupid and out of place.

I do not know whether the FTSE will hit 5000 I hope not nor do I know if 2013 will be a better year for all of us we can only hope so

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David West

Jun 07, 2012 at 14:06

Mike Cooper has a short memory regarding Ed Balls. Mr Balls along with Gordon Brown presided over a very damaging period for the UK economy in that no savings were made in the good times to bolster us in the bad. Borrowing like there was no tomorrow to spend spend spend, creating bad business partnerships and investing in fruitless endeavours like Shore Start along with may others. There was also the business of selling our gold at a rock bottom price. Letting credit rip and encouring personal borrowing added to the toxic mix. No. We are better off with Mr Balls OUT OF GOVERMENTand long may he be displaced. Labour did some extremely good things while in power but putting Gordon Brown and Ed Balls in charge of the economy was not one of them.

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David West

Jun 07, 2012 at 14:09

Got carried away!! That should have been Sure Start.

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Dimitrios Philippelis

Jun 09, 2012 at 05:19

By affecting the money supply, monetary policy can establish ranges for inflation, unemployment, interest rates, and economic growth. Without much debate, the effectiveness of monetary policy, its timing and its eventual impacts on the economy are very obvious.

QE cannot be considered a healthy measure to correct the heading of any national economy.

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Sean McCrumlish

Jun 09, 2012 at 09:25

How hard can it be to see that cutting interest rates to near zero is too blunt an instrument to be effective? It takes 12 to 18 months for cuts to work through the system all going well and only when all parties play fairly. The main reason why the strategy is not working is because the banks cannot calculate the full extent of their positions. If VAT rates and duty on fuel were cut , the effect would be an immediate stimulus to the economy.

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Jonathan via mobile

Jun 09, 2012 at 23:14

Printing money will only, as we know, provide a short term boost to equity prices and drive up precious metals. But it doesn't create real gowth, it just adds to the nation's debt pile and stokes inflation. Yes this is preferable for some to deflation but the effects of QE don't last very long. We have a burst of liquidity, a rally in stocks, the effects wear off and back down we go. I too believe that only war on a massive scale will eventually focus nations' manufacturing economies just like it did in the run up to WW2 in the US. War is where western nations are headed, probably with something to do with Iran,Israel or Syria..who knows. Western ecomonies need to realise there is no way back now. Austerity cannot cut fast enough without choking economic activity. The only way is money printing according to central governments - but this will prove runious too as fiat currencies get inflated away, inflation goes up, wages remain flat and ordinary people get squeezed more and more. To think of our leaders, caught in the headlights, beholden to the banks, the confusion, the fear of collapse...nothing will prevent the global economybfrom recession by year end, China's economic slowdown hitting the west hard. No wonder Ben Bernanke and the BOE are only looking to print when things get even worse on the European front. If they shot their load now what would they have to offer when things really do kick off in the weeks and months ahead. Two things will protect your buying power during these times I reckon: holding cash while the marets are falling and QE is wearing off and buying gold when its starting again.

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Jun 09, 2012 at 23:58

How can printing paper, or worse, putting a few ticks in a computer, possibly create wealth? Far too many parasites, too many people getting a free ride.

It's becoming like a computer game totally divorced from real life.

Trillions of dollars circulating as ticks in computers with no other existence. I pay my pension fund, they buy some unit trusts, they buy into bank shares, the bank pays a dividend & the shares move up and down based on the antics of a load of racketeers & spivs, the bank passes the money from the QE on to make a return on the investment, insurers take a slice, politicians have a dip, useless enterprise agencies & innovation boards wasting billions and producing nothing and round and round it goes.

Meanwhile in the real world the Chinese make all the goods and the developing world grow most of our food and we buy them on credit which we have no chance of ever repaying.

I see the ftse well below 5000 and 4000 in the very near future and staying there until the country earns what it spends.

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Geoff Downs

Jun 09, 2012 at 23:59

Some of the above I agree with. Holding cash yes, but also gilts. The demand for gilts will continue for a considerable period of time. Don't think inflation will be the problem and would be less positive about gold.

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John Thorley

Jun 14, 2012 at 01:23

I agree with the comments about QE. At best: a waste of time, at worse: very damaging. What we all do every day is wealth, money merely allocates the product of our endeavours amongst us.

The amount of money in the economy is merely a reflection of the wealth in the economy, like a big mirror. QE is like increasng the size of the mirror, it may make the image appear bigger but in actual fact it's the same.

What could be very dangerous is if the B of E continues on it's expansionary money printing exercise while business confidence remains low and thus more money will chase the same or slightly less output causing high street inflation. The B of E will then be forced to raise interest rates to tackle this and then all the first time buyers and even many second and third time buyers coming off their fixed term mortgage deals will be very hard hit!

As for equities, I wouldn't touch them until we get well the other side of all the problems in Europe. When the Euro breaks up the markets are going to tank out! The longer they fight on with the Euro the worse the riots and discontent will become in Spain, Italy, Greece etc until it collapses.

On a positive note, I think the UK economy is bearing up incredibly well given all the problems at the moment. As I have said before, zero growth or even slightly negative growth will do just fine for now if we can keep unemployment down while will navigate through all this.

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Geoff Downs

Jun 14, 2012 at 09:17

There is no doubt QE is an attempt to create inflation. It won't work and we are heading for deflation. There is an attempt in the UK to use QE and austerity. In the US to inflate the debt away, both policies will fail. A new solution will be needed.

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Tim Peters

Jun 14, 2012 at 12:39

Mike Cooper = hillarious. Maybe he's suffering from amnesia.

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