Justin Urquhart Stewart is a co-founder and director of Seven Investment Management based in in Mayfair, London.
Last month may not have been the final capitulation, but it certainly sent a shudder through many, normally quite stoic, investors. Although warnings of difficult times ahead have been well signposted and warned of, it took the dreadful sales figures from some of the retailers and builders to ram home the effect of what has been developing over the past few months.
Hyperbole has been cast around with gay abandon over the past few months, with dire warnings of depression and recession. However, like most similar issues we have to actually feel the real effect before we take any real notice. After all a "slowdown" is when it is reported in the newspapers, a recession is when the neighbour loses his business, and a depression is when you lose one of yours. Thus you can travel around Europe and find areas completely unaffected by any talk of slowdown. Last week I was in the Lake District, in the UK and such worrying talk was met with raised eyebrows "Crisis? What Crisis?" Shops still busy, hotels fully booked and a holiday season looking quite positive (presumably with a weaker Pound keeping more Brits at home).
Is there just a delay as the ripple effect of the slowdown hasn't spread out far enough from London yet? Or are we really just talking ourselves into gloom? The answer was perfectly illustrated in the figures from Marks & Spencer and Taylor Wimpey. It's tough and likely to get tougher.
It is, however, easy to generalise. Not everyone is affected the same way. At the top and international end of the retailing market, it is quite likely that the premium brands will remain initially unaffected.
So all is not lost in this slowdown but rather the economy is changing shape – and with it so are your investments.
The other area of fear is, yet again, the banking sector. The large capital injections for HBOS and Barclays have attracted more attention to the sector. By one way or another, these banks will get their rescue packages together and, along with RBS after their huge rights issue, will now look more secure in this uncertain world. They seem to be priced for bad news – the question is how much more?
Banks hate cutting their dividends as that is the quickest way to upset your most senior shareholders. These shareholders hold huge voting power and can decide who runs those banks, so few bank boards will want to stir up their angst and ire. The real area of potential bad news is much more likely to come from lower profit figures, along with a percentage being allowed for the unknown and unexpected financial explosion that will most likely occur at most banks, especially in the latter phase of a slowdown.
So it is a question of trust. If you feel that the big banks have revealed all their losses then maybe they are past the worst. If, however, you if you still can't trust them, then keep your powder dry and your wallet shut.