Cover of MoneyWeek magazine issue no 454

How high can the market go?

25 September 2009 / Issue 454

Our experts make their forecasts... PLUS:

  • Profit from the boom in oil discoveries
  • A high-risk construction stock to buy now
  • Karen Brady: convent girl turned First Lady of football

Excerpt

What you should buy now

The stockmarket’s in a bubble. But don’t worry – it’s a rational bubble. That’s what hedge-fund manager Crispin Odey reckons. Writing in the Financial Times this week, Odey – who called both the peak and the bottom of the markets, and so is worth listening to – pointed out that as long as the government is pumping cheap money into the system, investors will convert that money into assets.

Odey’s view makes some sense. However, it doesn’t entirely explain why it’s the cyclical stocks – those most dependent on economic growth – that have shot up so rapidly. Odey himself states that “we are not in a sustainable recovery”. So as soon as the money-pumping stops, those firms are the ones that will suffer most. That makes me reluctant to stick money into the market indiscriminately.

I’d rather invest in defensive sectors, which are cheap and generally paying very attractive dividends, than chase the broader UK market ‘bubble’ higher.

And, of course, there’s gold…

• Read the full editor’s letter here:
What you should buy now