Geoff Cutmore - Morning Thoughts

Buying Protection


An interesting few days to round off the week. Davos brought its regular revolving door of interviews with leading members of the business community. I know the event gets some criticism for appearing to do little other than provide CEOs, politicians and the great and the good with an opportunity to meet and discuss the world we/they live in. It is by design a talking shop rather than a venue for designing concrete policy responses or actions. Does that mean it shouldn't take place?

I can imagine, very easily, a world that doesn't include the annual World Economic Forum, but would that be the better state of affairs? I doubt it. I draw some comfort from the fact that the business community recognises its activities have a greater impact on our lives than 'merely' providing salaries for employees and revenue for governments. I would rather they were talking about it than not!

We had a couple of great guest hosts to finish the week. While I don't suppose either Guy Monson, Sarasin, or Hugh Hendry, Eclectica, think they share the same approach to their funds -- their current strategies share many themes. Both are big fans of the telecom sector, and both are buying portfolio protection. It became apparent through the shows that both feel we are due a pull-back in equity markets. Guy feels up to 10% could come off the markets. Hugh as usual is more concerned about a catalyst that causes bigger problems in credit markets.

Hugh is always good with a story to explain his foreboding, on Thursday we were treated to the parable of the Turkey. The human is the market, the turkey is the investor. At the point where the turkey is at its most comfortable with the human hand that feeds it, that hand wrings its neck!

Interesting stock picks for both:

Guy: Microsoft , Cisco , Intel , Vodafone . Prefers European Telcos, generally. Not a fan of media right now.

Hugh: Colt, Fastweb, Thus, Japan airports terminals, YARA, CNH.

Lot of chatter around at the moment about bearish scenarios for risky assets. I have read more stories in the last week about the Junk bond market -- opportunities and perils -- than I have read in the last 3 months. Is this where it starts? Your thoughts always welcome on this or other topics mentioned in this blog.

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