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Woodford Highlights Recovery Concerns

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Woodford highlights recovery concerns

Invesco Perpetual income manager Neil Woodford believes that an economic recovery is still three to four years away.

Woodford says that the major problems in the economy have not been addressed and that as a result the downturn still has a hell of a way to go.

He says: “Problems with the banking system, consumer economy in terms of leverage, commercial and residential property and excesses seen around the world have still not been addressed in this correction in markets. I believe the ingredients for recovery in this economy are not there and won’t until we see a re-balancing of the global economy, including the US and the UK.â€

Woodford says that those who believe this is a V-shaped recovery need to be cautious as a rise of 1,000 points in the FTSE has meant that in addition to opportunity there is now a lot of risk.

He says much of the value has now been priced in and maintains he will not buy into a cyclicals rally despite it being difficult to see what will break market confidence.

'I've scanned a number of cyclical stocks and their valuations and it is astonishing where share prices have taken valuations to, because of course there has been no recovery in the economy, there's been no increase in earnings and there's been no tangible sign on any improvement in profitability for many months.'

Instead he prefers some of the defensive stocks, such as utilities, pharmaceuticals and tobacco as well as pointing to companies like Tesco and Capita.

He says: “The opportunities are in the businesses best positioned to deal with what will be a difficult market for years to come. Those companies will be non-cyclicals, well financed with an international focus, good profits and cash flow diversity.

“'I find myself feeling strangely back in the sort of environment that I was in 10 years ago when I saw the opportunity in the market in stocks that the market hated because they were old economy stocks.

“Rolling on 10 years I find that we are in a similar, but for very different circumstances, polarised market where the businesses I see an opportunity in have profoundly undervalued share prices, but are the businesses where I see the greatest upside.â€

In other words, we Britons are just getting started.

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'I've scanned a number of cyclical stocks and their valuations and it is astonishing where share prices have taken valuations to, because of course there has been no recovery in the economy, there's been no increase in earnings and there's been no tangible sign on any improvement in profitability for many months'

i think that's an important point, outside of a banking sector which appears to have passed the catastrophic risk phase, most of the economic data paints a picture of a lessening in the pace of decline rather than genuine recovery.

It will takes years for the various fiscal stimulus efforts to take full effect where possible, the declines in gdp have seen trillions wiped off the value of good and services in total across the developed economies, and it will take years just to return to a position where those declines have been reversed and we end back where we were before the downturn.

In such an environment i suppose those companies that do have the characteristics he describes will do well, able to operate in an environment of less demand able to compete and deal with the excess capacity rather than requiring state bailouts.

i've noticed a return of the irrational exuberance which characterised a lot of the last decade......it's a pendulum move away from the end is nigh doom.......the reality is somewhere in the middle. And the reality is nonetheless pretty painful for most even if it isn't armageddon. it certainly doesn't have the feel of being V shaped in recovery.

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i think that's an important point, outside of a banking sector which appears to have passed the catastrophic risk phase, most of the economic data paints a picture of a lessening in the pace of decline rather than genuine recovery.

It will takes years for the various fiscal stimulus efforts to take full effect where possible, the declines in gdp have seen trillions wiped off the value of good and services in total across the developed economies, and it will take years just to return to a position where those declines have been reversed and we end back where we were before the downturn.

In such an environment i suppose those companies that do have the characteristics he describes will do well, able to operate in an environment of less demand able to compete and deal with the excess capacity rather than requiring state bailouts.

i've noticed a return of the irrational exuberance which characterised a lot of the last decade......it's a pendulum move away from the end is nigh doom.......the reality is somewhere in the middle. And the reality is nonetheless pretty painful for most even if it isn't armageddon. it certainly doesn't have the feel of being V shaped in recovery.

I would argue the banks are still at risk, the have been saved for the time being but if the economy gets worse the banks will be back under threat again and this time the govt won't have the money to throw at them.

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Woodford highlights recovery concerns

I wouldn't trust this guy as far as you could throw him... take a typical solid income stock, that hasn't fallen much at all since 2007.. reckitt benkiser... a stock like this may well hold up its end of the deal in earnings as its relatively recession proof, the business is growing, its well managed and well exposed to growing markets as well as stable ones... 10 years ago this stock was yielding something like 7% and valued at £6 , its now yielding about 3% and valued at £26.... I have quite a bit of it for historical reasons , mostly bought during the dot com bubble so I am happy to stick with it.. but would I buy it now at £26 ... probably not... my reasoning would be in capital terms there is some downside risk but not much upside, the yield I could get from bonds with total capital security...... the same is true with utilities/tobacco companies etc which are simlar income/safe havens woodford would be targetting ... which leads me to wonder.. is he buying stock now ?... becasue theres precious little out there with a strong story to tell... sure they are good companies, sure theur yield is very solid, sure if there is a fall they are amongst the safest stocks to be in... but personally I cannot see the logic in doing it.... funds like his make money through trading... if you want a true income position you should be buying and holding over time... factor in the management costs, and trading costs and I can't see how I could invest money with woodford without automatically seeing it decline.

In other words, we Britons are just getting started.

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