Don't Worry, Be Happy

Andy Brough, our guest host fund manager from Schroder,s thinks the markets are getting way too bearish. OK, the Western consumers may be slowing up their spending, but what about the Eastern consumers who are ready to start buying the same stuff from the same companies?

Andy is refusing to be bowed by the specter of a growth slowdown in the US and UK economies. He is unfazed by the likelihood of higher rates in Europe and a slowdown in Germany. More than ever he says this is a time to concentrate on the fundamentals. Does the company produce good-quality earnings? Do they have limited exposure to a cyclical slowdown? Are they currently on a compelling valuation?

As a long-side manager with billions of pounds to invest and a mandate to stay invested he has strong reasons to believe in continued value within the market. He also has a good point. Equities have started to discount an increasingly negative economic future and the analysts have tried to catch up by producing increasingly negative earnings outlooks for 2008. And yet outside of obvious sectors like housing and retail, compelling evidence that corporate earnings are slowing sharply is difficult to find.

In our chat this morning we talked about the state of the U.S. economy. Merrill Lynch's chief North American economist seems to think the U.S. is probably already in recession. But is this a true consumer down-and-out and flat-on-his-or-her-back slowdown, or the short, sharp pullback prompted by tightening credit conditions? The former is much scarier than the latter. The Fed can tackle a credit-led slowdown, but trying to re-inflate a dead consumer will only be stagflationary.

Did you catch the new set? We're enjoying the chance to throw ideas around the desk.

Your feedback always welcome - here.