My subprime crisis

Oh, dear! Already badly wounded in July, this private investor repeatedly had chunks bitten off him in the first half of August. His geared play on the FTSE100 has, thus far, been a loser. He is now barely above water for the year. And all because of the difficulties of credit markets in anticipation of spreading contagion from the subprime crisis in the US. There are some bad packages of loans out there and nobody's sure of the degree of the toxicity of the packages and who's holding them. The resulting uncertainty set off a lurch for liquidity and this has resulted in some strong selling of the most liquid larger stocks, at least until late last week. I fancy this was reinforced by selling by leveraged hedge funds and investors on the long side as margin calls hit.

But are many FTSE100 companies short of liquidity? Are they near distress? No, no, no! Many of them are awash with cash and every day for months have been buying back substantial quantities of their own shares. Unlike in the late 1990s, they are lowly rated and with high earnings yields. So, I have spent the first two weeks of August repositioning my portfolio towards the FTSE100 (AstraZeneca, Barclays, Hays, HBOS, iSharesUKHighDividend, Kazakhmys, more Northern Rock, more Royal Bank of Scotland) and some FTSE250 companies whose prices seemed stupidly battered (Inchcape, Keller, Paragon). I had to say goodbye to some old friends to finance this (Inveresk, more Soco Intnl., Premier Farnell, SmallerCosDividendTrust, WHIreland). It's been an extraordinary quantity of transactions for me ... I hope that it's unltimately as profitable as my shift to SmallCap value shares in 1998-2001. The FTSE100 is down for the year. I still expect it will end the year quite a bit higher.