Stocktake: Few nerves as markets hit new highs


US markets have enjoyed their best start to a year since 1999, the Dow Jones last week surpassing 15,000 for the first time.

Up 14 per cent in 2013, the Dow hasn’t suffered a three-day losing streak in over 90 days – the longest such run since 1958 – and hasn’t seen a 5 per cent decline since November.

Sentiment looks frothy among professionals. In the semi-annual poll of money managers by US magazine Barron’s, a record 74 per cent said they were bullish compared to just 46 per cent six months ago.

Hedge fund leverage is just shy of its 2007 peak, and hedge fund cash balances are at their lowest level since 2000.

Bullishness among retail investors is barely above its average over the last four years, however. Fusion IQ’s Barry Ritholtz notes there was “hardly any mention” of Dow 15,000 on the nightly news. “No Dow 15,000 hats on TV. No media trucks lining the street outside the NYSE or Nasdaq to cover the milestone.” Indifference “is not the sort of thing typically seen at tops”.

No end in sight for Nikkei’s rally

Japan’s Nikkei last week hit 14,400, its highest level in five years.

The index is up 35 per cent in 2013 and 65 per cent since last November, but is it another false dawn?

It’s been in a secular bear market since 1989, when it peaked at 39,000.

Cyclical bull markets have not been uncommon – the index has seen rallies of 56 per cent, 62 per cent, 136 per cent and 61 per cent over the past two decades.

All fizzled out, with new lows following.

The current rally ranks as the second-largest, and shows little sign of pausing.

Weekly inflows into Japanese funds hit a record in April, and trading volumes hit their highest levels in four decades.

Is Buffett’s Berkshire too big?

Key man risk is also an issue at Warren Buffett’s Berkshire Hathaway. More than 40,000 investors and devotees flocked to hear Buffett (82) at Berkshire’s recent AGM .

“The key is preserving a culture and having a successor, a CEO who will have more brains, more energy, more passion for it than even I have,” said Buffett. However, even if Buffett’s replacement is such a person, Berkshire will not see returns of yesteryear.

Last week, shares hit a new all-time high of almost $167,000, compared to $16 when Buffett took over in 1965. However, Berkshire is now the fifth-largest company in the world, and size impedes growth. Despite shares rising by a third over the last year, Berkshire has underperformed the market since 2009.

United bounce back after Fergie dip

Manchester United shares have risen by a third since the club floated in the US last August, valuing the club at $3 billion. Are rockier times ahead, now that Alex Ferguson is gone?

Investors took the event in their stride, the stock initially falling 5 per cent before recovering. So-called “key man risk” is an issue but relative decline on the pitch may not translate to commercial weakness. After all, Real Madrid – no Champions League title since 2002 – were last month ranked by Forbes as the most valuable football team in the world.

Similarly, United’s brand is strong. It has more than 650 million fans, driving lucrative sponsorship – last year, GM signed a $559 million sponsorship deal with the club.

Stresses from 2008 crisis still at play

A study has found that 93 per cent of financial advisers suffered from post-traumatic stress disorder (PTSD) following the 2008 global financial crisis, with 39 per cent having severe symptoms.

Published in the Journal of Financial Therapy and entitled “Financial Trauma: Why the Abandonment of Buy-and-Hold in Favour of Tactical Asset Management May be a Symptom of Post-traumatic Stress”, it notes that last year 63 per cent of money managers said an active investment style was better than a passive one, compared to just 24 per cent in 2005. This may be a “residual symptom” of PTSD; by seeking to “avoid future financial trauma”, advisers “may ultimately put clients’ financial health at risk”.

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