Hint of upturn will start stock scramble

I recently finished reading Jonathan Maitland's How to Make Your Million from the Internet, which is currently at number three on the UK best-selling business books list. Which means, I suppose, that a lot of people still hold the dream of making a million from something to do with the Internet at some point in their lives despite its out-of-favour status with world markets right now.

Reading the book reminded me of some of my own columns from last year - only in mirror image. Whereas I was constantly astonished at valuations and had a "don't touch it with a barge-pole" mentality, he was gung-ho, enthusiastic and ready to grab a slice of the action that would turn him into a multimillionaire rather than just the plain old ordinary sort.

His plan, like to many a stock market virgin turned aficionado before him, was to mortgage the house and use the proceeds to day-trade until he'd made the requisite million. He gave himself a year in which to amass the riches.

However, not being entirely stupid, he didn't give up his job as a journalist and he also got an advance from his publisher to write the book of his experiences.

To be honest, reading the book is like watching the movie Titanic. You know how it's going to end but you watch in horrified fascination at the excesses above deck while all the time knowing that the icy water is pouring in from below. So when he decides on A Very High Risk Strategy to boost profits you know that it's akin to the captain shouting "ram the iceberg, we'll survive" and you just wonder exactly how much he's going to lose before he jumps into the lifeboat.

The worst part of all this was that, at one point, he'd made quite a lot of money. Nowhere near the million, of course, but enough to take a year off and enjoy the fruits of his daily logging on to sites like www.cnnfn.com and www.bloomberg.com (which are, actually, quite informative) as well as www.daytrader.co.uk - I don't believe in day-trading so what can I say!

The subtitle of Jonathan's book is And What To Do If You Don't, which is just as well. Although he didn't make much money from the trading he did set up his own website (the same name as the book) and he made some money from that.

Although originally designed to have market information for other gung-ho punters, most of that has been discontinued and the site is really just an advertisement for a range of financial know-how books, which probably brings in some revenue but is a waste of time for anyone who logs on looking for something interesting.

Actually, he was lucky the experiment ended when it did, at the end of last year, rather than continuing on into the mayhem that followed. The publisher's advance surely wouldn't have covered the losses that would've ensued if he'd held on until 2001.

One of the sites he mentions in the book is Charles Schwab, which is probably the biggest online brokerage house in the world, and which recently issued a profits warning as well as announcing that it would likely start to lay off staff.

I remember writing that many of these online share trading companies would feel the pinch in a bear market but was amazed to read reports that their trading figures were higher than ever at the beginning of the year. Maybe that was the day traders flocking to the door (or at least trying to).

But now activity has finally started to dry up and companies like Schwab and Ameritrade and e-Trade are having to cut costs. Some reports say that online trading is less than a quarter of what it was last year, which sounds about right to me.

According to Schwab, trading was down 31 per cent in February.

Given that nobody has anything good to say about markets, the forecasts from some brokers that trading might be sluggish for the first half of the year but pick up after that may yet be wildly optimistic. Nevertheless, I can see how, at the first hint of an upturn, people who lost a fortune will think that there's an easy way of getting it back.

Although everyone is complaining bitterly about the bear market, it's still very sectoral. Part of the reason it's spreading, though, is probably because margin calls and fund redemptions mean that the professionals are having to liquidate positions to raise cash. And it's easier to sell old-economy stocks and get some real money for them than to find someone to take some tech-wreck off your hands. That was always the wail of my equity friends, anyway.

When times were bad and they needed to raise some cash they always had to sell the stocks they least wanted to let go. And, when those stocks performed later, they complained bitterly that they never wanted to sell them in the first place and vainly scrambled around to try to find cheap replacements.

I can understand all of that. But what's perplexing me is the fate of the euro in the current carnage. The US economy is definitely in a slowdown if not actually in recession, but the dollar is back at levels it was at the end of last year, thus undoing the tentative gains that the euro had been making.

One of the reasons for dollar strength (I thought) was Europeans scrambling to buy into the US economic miracle. Now that the miracle is crumbling while growth in Europe is holding its own, how come investors are still keeping faith with the dollar? It's frightening to think that their lack of faith in Wim and the boys in the ECB is so strong that they'd rather stick with Al and the Fed, even in bad times.

Another factor, I suppose, is Japan. I haven't talked about Japan much in the last couple of months because it's been pretty unremitting gloom, but a lot of commentators believe that the government has been allowing the yen to weaken to try and make exports more competitive and will continue to try to force the value of the currency lower.

The main beneficiary of this weakness has been the dollar. And a casualty of this approach will be Europe, since euro-zone economies compete with Japan in a significant number of markets and can ill-afford cheap competition at this point.

It would be a particular blow to the ECB if, in keeping its eye on the quarterback, it forgot all about left field.