Running out of steam ?

Ages since I last posted but Q4 seemed to have been dominated by the markets love affair with risk. With so much bullishness around what new was there for me to say? "If you rest you rust" as the old saying goes.

Is it my imagination or does the 'risk-on' rally finally seem to be losing steam ? Maybe it's Citibanks difficulties with getting away its $20 billion capital increase, or maybe it's the end of the Dollar Goes Down Forever (DGDF) trade, or maybe simply year end torpor that have unsettled market sentiment over the last few days. Of course it could be the awful recognition that Greece is sleep walking to default or a growing understanding of the scale of Dubai's continuing problems.

As we enter 2010 I can't but help feel that the stimuli packages entered into around the world have kept the banks solvent ( that's a real result) but have done little else to stem declining fundamentals in the broader economy. Certainly the consumer doesn't seem to be riding to the rescue and the corporate sector is going to find accessing capital difficult as 2010 wears on. Calls in the US and the UK for an immediate end to both loose fiscal and monetary policy are growing - if they are followed through are we prepared for unemployment of 10% in both countries with an even larger number of underemployed? What does that mean for tax rates and GDP growth?

At one stage in November I was lulled into believing that the threat of a double dip had passed but horrid hotel occupancy numbers and the continued weak level of demand for airline business class seats still point to a 50% chance of one occuring. In 2009 mid-week business travel has been much weaker than weekend leisure travel so that we are now at the lowest hotel occupancy rates in the US since the 1930's depression. In the Emerging Market space the scope for another spat between Russia and Ukraine over gas is firming up for early January, while the PRC's non-performing loan book (and associated fraud) hovers over Beijings banking sector like a wraith.

I guess quality corporate bonds are as good a place as any to park as we enter the New Year while I try to work out whether we're headed for inflation or deflation. For the time being I guess we should be preparing for the fact that we are experiencing a recessionary environment within a longer term depression. The emphasis on cash rich , blue chip, well managed companies seems to be coming right at last.

If hotels could talk.....

Am still sitting on cash. The latest airline numbers might point to some slow down in the rate of decline in the global economy but that's as bullish as I can get. As for growth forget it. Aprils IATA data shows the decline in demand continuing (load factors fell to 74.4% despite the boost from the Easter holidays) outstripping the 2.5% cutback in capacity. Premium traffic in March saw a 35-40% drop in revenues. Cargo traffic in April was down a shocking 23.3% from prior year levels.May will be a key month - if there is some tentative sign of inventory restocking then it should show up in the cargo numbers then - if it doesn't some of the airlines are going to be on life support.

Spent Friday night in London. The Berkeley was as always efficient,comfortable and an overall fun place to stay ( like the Carlyle in New York or the Park Hyatt in Milan they somehow manage to find polite,unflappable staff ). The main restaurant was already booked solid when we made the reservation three weeks ago but they called back to say we could have a dinner table at 10.30. We opted for the Box Tree Cafe and a more reasonable time of 9.30. From the look of London on a Friday night there is no sign of a recession, the hotel, restaurant and bars were all humming.Onto Woodstock on Saturday for a wedding. The Feathers had lost our reservation which was no loss as The Bear was an altogether better choice. Again, no sign of a downturn with restaurants and bars all solid.Was struck speechless to see a coachload of Japanese tourists getting off their bus with all of them wearing face masks as a first line of defence against swine flu.

Wedding was full of City grandees many complaining about their new ( vulgar and brain dead ) owners. Feeling over the third glass of Dom was that the rally was running out of steam but that another leg would come storming through when long only funds decided to commit to the market - even hedge funds are seeing a slowdown in the rate of redemptions.It seems the big worry for many institutional investors is that having missed the upwards turn in April they are in danger of underperforming for a second quarter if they don't get their equity weightings back up into line.Absolutely no allowance being made for geopolitical problems re North Korea or Tehran.I seem to be a solitary bear.