Steady on

Wednesday saw the Dow close for its fourth consecutive down-day on the trot which is causing all manner of discussions as to whether this is the beginning of the end of the long rally.

Fine, the market has given back three weeks’ worth of gains but what’s that amongst friends as it had been on a mission. The 12-month average index level is 14,798.29 points, yesterday’s close was at 15,989.77 points. Why the panic?

Apart from that, any self-respecting portfolio manager would be dead chuffed if stocks gave back a bit before year end as it has generally been a good one, bonuses have most probably already been set and it would be nice not to go into the New Year with every last drop of juice squeezed out of the market.

Let’s face it, it might only be December 5th but for all intents and purposes 2013 is history.

The small correction we are seeing is being put down to jitters over Fed tapering but I would be happy to contend that that is the sort of nonsense one reads when journos have nothing better to say.

Personally, I still can’t see what the scare is all about. So the Fed has decided to scale back its bond buying a bit which is, as I was reminded at lunch yesterday, nothing more than a reduction in the speed at which the Fed is ballooning its balance sheet. As the economy picks up and as fiscal revenues begin to recover, so issuance should be declining which ought, in its own right, keep rates stable without the need for synthetic demand.

Eyes for Spanish property

Meanwhile, I had a call with a dear friend who has probably made and lost more fortunes in the Spanish property market than most real-estate analysts have had hot dinners. After a protracted period during which he has been licking his wounds after the precipitous crash of that market, he is gearing up to get involved again. Although his background is in the beach-side residential sector, he is beginning to focus on urban commercial business.

Apparently he is not alone in being struck by the high level of infrastructure in the major cities and the attractive pricing, both in terms of prices and rents. He reckons that this has not gone completely unnoticed in parts of Asia and he is poking around on a bargain hunt with a view to getting involved before everyone else arrives.

This was interesting to hear this from someone with proper knowledge of the subject and the country, as I had put out a piece in the IFR about a month ago on how I suspected that Spain might be worth considering seriously for the longer term investor with the ability to ride out the volatility which bottom fishing tends to bring with it. The desire by retirees from the cold north of Europe to move to the warm south remains undiminished and with property prices as low as they are, the time looks right.

However, my chap isn’t that keen at this point to play around in the resi sector where the overhang remains significant but seems to reckon that commercial is the way to go. I shall be watching with interest.

Just to put the icing on the cake, Moody’s raised its outlook on Spain’s Baa3 rating to stable from negative citing sustained economic rebalancing, a decline in market access risks and a significant reduction in contingent liabilities.

There is a lot of cheap property around and, unless you’re burdened with school fees, it might finally be worth thinking about sticking part of the bonus (or the whole one if you don’t work for an American investment bank) into something down there. After a long period of adjustment, we seem to be getting a lot closer – not quite there yet – where banks have marked their stock of repossessed properties to where the market is, rather than to where they’d like to think it ought to be, and this should slowly lead to a firming up of bids.

First movers might make some money from this but it won’t be huge for a while to come. Nevertheless, you can still get some nice stuff for you money, especially if you happen to prefer golf to rugby which, by the way, counts me out.

In the markets, the slew of issuance in the hybrid bank capital space continues although it feels to me as though the sector is beginning to grow a little tired. I’d suggest treading carefully; time to book lunches rather than trades.