every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.
An Inquiry into the Nature and Causes of the Wealth of Nations – 1776 Adam Smith
The underlying principle of the invisible hand goes along the following lines....
If everyone is as free as possible to pursue his or her own self-interest, he or she will be led by an invisible hand1 to promote the welfare of society. This principle assumes laws are upheld and property rights respected.
When Adam Smith wrote about the “Invisible Hand” he probably didn't foresee the extent of the mess that people could conjour up using exotic instruments of financial destruction. Governments have today realised that self interest combined with outrageous de-regulation has allowed the creation the emperor's new secuiritsed assets. The rating agencies were creating wealth out of thin air. A Magic Bean with a triple A rating... that was then insured against failure to sprout, and that policy sold on the market to some other idiot. The issuers such as AIG for example were insuring in excess of $440 Billion and with little cash available should things go a tad wonky. But then with such high ratings, what is the risk of default? Well spring has arrived and I see no beanstock or golden goose. Word on the street is AIG cant help. How can this be? Turns out there was no “law”
against AAA magic beans and its sprouting policy. “This can't be allowed!” people cry.
Here we are Phase two.....The age of the visible hand!
We are now entering the age of the visible hand. Governments are stepping in left, right and center to prop up, underwrite, nationalise, part-nationalise, buy preference stock, dictate loan rates, ban repossessions, bring forward spending plans, cut VAT, print $ bills
Surely that might mess with the markets? Why yes, yes it does!. Oh what a fun night I had when out of the blue short selling financials was banned. Yes the rules of the game changed overnight and it cost me. Property rights, what rights.
Oh I remember oil at $145 and Bush and Brown said something “HAS” to happen to this oil price, and low and behold it did. That hurt me too. Three months later and oil is trading at sub $50. Better listen out for their next stock tip. Oh wait.... what's that... “our house builders are good value”....I'm just kidding!
So in this new game are new bubbles going to be created? Are some stocks going to get unfairly boosted? The simple answer is Yes
Recent jump in profits. Up 11% at the end of Sept to £45 million
'If the Government fulfils its economic plans we will find ourselves in a very robust market,' said Atkins chief executive Keith Clarke.
'But even if they fail we have found that in times of downturn there tends to be more consulting and planning work, getting better value for money, which also plays to us.'
What they do.... design physical structures such as office towers, schools, bridges and highways.
They entrust us to look after the management of projects, people and issues – ensuring that deadlines are met, costs are controlled and success is delivered.
Share 2 – BUY Diageo (DGE.L) 884
Way back in 2004 these guys were crying about the weak dollar hurting their profits. That has changed very significantly of late, with the repatriotisation of the US dollar from the emerging markets and the continued weakening of the pound. With the strong prospects of further interest rate cuts in the UK this will only help boost Diageo specifically the Scotch Whisky exports. With Share buy backs continuing unabated the share could be trading significantly higher ahead of next interim results in Feb 09.
Share 3- BUY ETFS Commodity Securities - Leveraged Oil (LOIL.L) $10.40 ($58 per Barrel)
With the current decline in what is clearly the most manipulatable of all the world securitised instruments, OIL, something will have to give. We have already had one emergency OPEC meeting where output was cut by 1.5 million barrels a day and it had little affect on the markets. This will not be allowed to continue with key players such as Iran, Venezuela and Russia all requiring crica $90 barrel to fund domestic spending plans. You could easily argue that the downturn in world economic climate has resulted in the oil decline? Or could you? The rate of growth demand has slowed in china but the demand is still growing. Where the downturn has hit, is oil infrastructure companies who have to cancel projects, Wood Group, Pertrofac and Bateman Ltw etc. This further exacerbates the fact the Peak oil was several years back and production continues to decline. With emerging market car ownership aspirations increasing and current ownership levels lower than 10 cars per 1000 the boom has yet to start. Oil must be considered as a pseudo-currency and if you have massive reserves in the bank and you know there will always be demand for it, the incentive to realise the value of a barrel in current dollar terms by pumping it out the ground, just isn't there. So supply gets squeezed, much to the annoyance of western leaders.
Gholamhossein Nozari, Iran's oil minister, said that the stability of prices "needed a far reaching decision and further measures," after prices fell from a peak of $147 in July.
"We are going to review oil market conditions and if there is a need, there might be an emergency meeting,"
That would be a second emergency meeting! The exporters will not be beat on this decline in oil prices.
Iran depends heavily on oil sales, earning 80 per cent of its revenue from oil exports, and the Islamic Republic set its annual budget on the assumption that oil would trade at $90 a barrel.
I admit that this isn't a stock per-say, but with a leveraged oil tracker, significant gains can be realised during equity rallies as well as having exposure to the OPEC manipulation. A visible and vocal hand indeed!
Regards, G
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