An Unfounded Rally
The stock market usually falls apart as soon as my back is turned - so what on earth caused a 2% surge in the FTSE 100 index in the first week that I was out of the country? The answer, sadly, is nothing in particular.
I cannot feel that my attempts to prop up the Spanish economy for a couple of weeks will do much to solve the euro crisis, though I was intrigued to see that Spanish roads are now in the same state that ours were 20 years ago, while ours are now in the same state as Spain's were back then.
While I was away, there was no international economic news of any great import, nor were there signs of improvement back home - indeed, Chancellor George Osborne looked as out of his depth as ever.
Confirmation that this short-lived bull run was no more enduring than any others this summer came the following week, when the market slipped back. We are consistently seeing a lack of follow through whenever the Footsie gets above 5,900 points, and quite rightly so. This market is high enough after the gains that have been made over the past few months.
Once more we have seen how senseless it is to sell in May and go away. The Footsie slumped below 5,300 points by the end of the month, only to recover strongly in June, July and most of August. If you bought back in after St Leger Day, as the unreliable adage suggests, you just lost more than 10% of your savings. Worst still, the market has started falling again so you bought back at just the wrong moment.
The lessons of the summer are that investors should buy on the dips, as this column has frequently argued. Once the FTSE 100 is above 5,900 points I can see no compelling argument for chasing share prices higher.
Eurozone Travails
The eurozone crisis has erupted again in Greece, where the central government is drowning in debt and unpaid taxes, and in Spain, where the central government is equally helpless since it is at the mercy of profligate regional governments and banks. The Spanish regions want more powers to squander money and Catalonia is arguing for outright independence, which just goes to show the propensity that politicians have for a) creating a financial mess and b) believing that the European Union will bail them out.
To point out that the UK's second quarter GDP figure has been edged upwards again is rather like clutching at straws. So the economy is believed to have contracted by 0.4% rather than the original 0.7% bombshell or the minus 0.5% first revision. The deeply disappointing government borrowing figures suggest that the economy is still going nowhere in the right direction.
Nonetheless, I shall be looking to spend the rest of my ISA allowance for this year if shares fall back any further. My portfolio, built over the past three and a half years, is still ahead even without adding in dividends received. Markets are welcome to drift sideways, as this one has done for three years now between 5,000 and 6,000 points.
It is worth remembering that the FTSE Index is up by 50% since it hit the bottom early in 2009 - and that's without counting in all the dividends earned since then. The stock market is still a good place to be.
Food for Thought
In an intriguing turnaround, 
Tesco (TSCO) is reducing the amount of space devoted to non-food items as part of its recovery strategy. Tesco was first to diversify out of food and did so very successfully, leaving rivals such as Sainsbury struggling to keep up. But in the economic downturn, Tesco realised belatedly that while we all need to eat, we do not need to buy as many non-food items, so it was set back more badly than the laggards.
The new team at Britain's number one supermarket still has to prove itself. I fear that this latest switch in emphasis could be in full swing just as the economy starts to take off again.
Meanwhile, Tesco is also opening what it calls more “dark stores”, which are stores catering specifically to online-only orders. These “dark store” openings are being made instead of conventional store openings. The trouble with strategy lurches is that they involve heavy spending with no guarantee of success, as HMV (HMV) and Woolworths demonstrated rather dramatically. I am not suggesting that Tesco will share their implosion but I do fear a downward spiral.
I remain highly cautious on Tesco and will suspend judgment until first-half profit figures are out next week. They are unlikely to be encouraging but news of a 1.5% fall in like-for-like sales came out in June, so investors have been warned.
The yield is quite good (but slightly lower than for Sainsburys (SBRY), in which I have a shareholding) and the price/earnings rating is undemanding. If you are tempted to back the new strategy, just be aware of the risks.
Plebs Are Us
Is it a sign of the times, or an indication of how people at the top echelons of the Conservative Party think, that a tirade of obscenities is regarded as less insulting than to call someone a "pleb"?
Speaking as a pleb, I reckon that those who make the laws still think that they do not have to comply with them.
Market Performance (September 24 - 28)
FTSE 100: -1.89%
FTSE 250: -1.81%
FTSE All Share: -1.84%
FTSE Small-Cap: -0.08%
FTSE AIM 100: -2.23%
FTSE Fledgling: +0.40%
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Rodney Hobson is a long-term investor commenting on his own ideas and portfolio; his comments are for informational purposes only and should not be construed as investment advice.
