You could not make this stuff up

May 12, 2010

-David Kuo is director at the financial website The Motley Fool. The opinions expressed are his own.-

You could not make this up if you tried.

Britain gets its knickers in a twist over a hung parliament, Europe has been unceremoniously skewered by a Greek debt crisis, and if that wasn’t bad enough, the Bank of England’s Monetary Policy Committee sits idly by as the rate of inflation climbs.

Welcome to the month of May when investors are supposed to sell and return again on St Leger’s day.

If truth be known, a hung parliament was always on the cards. It was always likely that no single political party would win enough seats in the May general election to form the next government.

Consequently, much horse-trading and political wrangling would follow when all the votes were counted – in some cases re-counted. What we did not expect, though, was politicians putting their self-interest ahead of the country’s interests.

While these unedifying events are taking place, the market is watching.

Thank goodness our politicians have finally come to their senses. When will they realise that the market is not interested as to whether the Tories and the Liberal Democrats can reach an agreement over electoral reform. Nor is it bothered about David Cameron’s Big Society.

It simply wants to know how Britain intends to tackle its Budget deficit. Each day that passes without a resolution to the political impasse means another 500 million pounds will be added onto Britain’s debt tab.

For now, the market is prepared to cut British politicians some slack, but it will want to see some concrete proposals soon. While political squabbling takes centre stage, the Bank of England is happy to sit on its hands.

Without a coherent strategy to tackle Britain’s inherent structural problem, namely its debt, the Bank’s interest-rate setting committee has been paralysed into inaction. Therefore it is hardly surprising that the MPC decided to leave interest rates on hold at the last meeting.

But it won’t sit on its hands for much longer. Europe has, to some extent, managed to find a large enough sticking plaster for its Greek debt crisis. A $1 trillion cache of ammunition in the form of guarantees from the International Monetary Fund and European countries should be enough to deter speculators from betting against the euro for now.

However, structural problems remain, and Europe has no room for complacency. These are difficult times not only for governments around the world but also for investors. However, it is in times like these that private investors can steal a march on the professionals.

The falls in markets around the world has provided private investors with great opportunities to buy shares at attractive prices. They say that this time things are different – the problems are some of the worst we have seen in generations.

That may well be true. But it also means that we are seeing some of the best investing opportunities for generations.

One comment

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As a private investor there have been a multitude of opportunities, but each time the market reacts irrationally we’re meant to dive in for this opportunity? Private investors, unlike the IMF and the ECB, don’t have bottomless pockets, we can’t rely on the ‘taxpayer’ to fund our renewed investments every time there is a great opportunity.
Now is not a great opportunity: It’s another scam. Many private investors have already bought in at the last few market dives.
With the Greek (and perhaps PIIGS) debt and the lack of transparency that lead to it, the fumbling EU’s decision to bail out Greece (when it should have been allowed to fall flat on its face) and speculators adding fuel to the fire, I as a private investor have lost confidence in the market makers, the government, and the media. Next time I will park my cash elsewhere. You all seem so incompetent, or just 100% committed to deceiving tax payers and private investors.

Posted by SimonDrake-com | Report as abusive