Next week's Lottery Numbers and where Stock Markets are going.

I have been involved in the wonderful world of Investment for 36 years now - and I would like, for the sake of posterity, if for no other reason, to share those things that I know with total certainty..............................................................

OK, I hope you all got that? If not, I have arranged with the Almighty  to have it repeated on every scrap of blank paper in the world.

From this the more perspicacious among you may have worked out that this post is, at least in part, an attack on the "Guru syndrome" that pervades much of the investment community.

Every day my inbox is flooded with utter garbage from the soothsayers, shamans and self-aggrandising morons who are, unfortunately, what the investing public see when they first try to tiptoe through the minefield that is money. The worst by far are the bulletin board fora that exist most of the time as a soapbox for those with an axe to grind with varying degrees of skill at disguising the fact. The companies that host these fora or "news services" also seem to have an advanced form of colllective amnesia at best - or possibly a cynical disregard for the realities. One such company has been sending me daily emails for some years now telling me the world as we know it is about to end or, alternatively, that I have to rush out, sell my children and put my entire wealth into a company in the wilds of Crapistan that has located, deep underground, a limitless supply of fossilised paleolithic mongoose droppings that will solve the world's energy crisis overnight and make me rich beyond my dreams of avarice - something I find particularly insulting as my dreams of avarice are pretty wild, let me assure you!!! To add (even more) insult to injury such articles tend to be interchangeable according to whether or not the FTSE went up or down 20 points the week before.

Yea verily I say unto you - the works of Murdoch and his ilk are now an intrinsic part of our society. Red-top journalistic language is the only valid language that seems now to be acceptable.Markets do not go up or down an amount that they usually do - they "soar on news" or "market woes" are at work. Reporting the news and allowing a little comment is a rare thing - the cult of the odious (but not stupid) Peston and his fractured robotic english is typical. The thing the wannabe Peston clones have in common though is the "Cassandra Complex" - the need to see an obvious conclusion nobody else has reached. It is not enough to observe that certain conditions have led, without exception, to growth or contraction over recorded history - there has to be a "but" that only the writer can see. Through the looking-glass of such writers boom and bust await out of sight just around the corner, ready to devour us all or (more rarely) to create the new Utopia.

My ire is particularly reserved for the doomsayers. Despite the wonderful phrase that "economists have predicted twenty of the last two recessions", there is  a very valuable role to be played by those that point up the pitfalls that might befall us, but only if they equally weight the actuality of what is happening. Almost every day I see an article starting with a headline such as "The UK is bankrupt" which goes on to describe what would happen if a certain set of circumstances were to simultaneously befall us. No thought is given to the fact that whatever scenario is described has never yet happened and that such circumstances would mobilise the full system to counter it - Oh No!! It is rather the mindset of the rubber-necker at the site of the accident who can't wait to see the blood and guts. There is something darkly wrong with those that want to see the suffering (including very tangible suffering) that such events would bring. It is the almost audible rubbing of hands with glee that angers me.

The issue of journalistic responsibility is also one that perhaps should be addressed. During the whole Banking Crisis we were treated to only just post-pubescent "reporters" that had managed to get out of the hair salon for long enough (OK - personal issue here as more comes out every time I brush mine!!) to report. The scene of BBC reporters "lining up" the queues outside Northern Rock's branch in Kingston-upon-Thames that I saw with my own eyes, together with camera crews lounging in the cafe opposite until the crowd looked newsworthy is one that makes me very reluctant to buy my TV license.

In order not to be a total hypocrite, it behoves me to offer a positive contribution. A huge amount of analysis is produced every day - most good, some bad and quite a lot excellent. Statistics bombard us from all sides - most of which are accurate and timely (although I am always amused by the american habit of trying to look for the "hidden meaning" in almost anything - it is almost usual for their market to react in a contrary fashion when figures are released). Fund managers are often attacked for doing little original and charging like wounded rhinos for the privilege - despite being constrained in a way similar to the medical doctrine of "first do no harm". Hippocrates or hypocrite?

My own favoured area is derivatives. While not being as complex as often described, unquestionably this is not an area for the faint-hearted. Many of my colleagues use complex models to predict current values - there is relatively little sooth-saying around. Such people are usually referred to as "quants" - although I have heard them often described by a word that sounds remarkably similar! One quant model I follow sees the fair value for FTSE at 5700 by the end of this year - a model based on a number of relatively easy-to-predict factors such as risk premia, dividend yield, interest rates and government bond levels among many others. Where it gets interesting is when the iterations that lead to a result are allowed to expand - i.e. look at all the worst and best scenarios. That makes a slightly less comfortable range of 4400 - 6300. Do you see the link with my comments above? - look at the negatives only and yes there is a case to be made for living in caves, look at the best alone and you might as well jump the waiting list and order the Ferrari now.

Reality (sorry to introduce such a dull concept) dictates however that we work (as individuals and collectively) to avoid the worst (sorry - we are not going to stage a massive accident just so you can pretend to be shocked while getting your frisson) and there are always those that are less fortunate and miss the very best. The concept of "mean reversion" which can be roughly translated as "business as usual" is a powerful one. One of my tutors in Quantum Mechanics at Oxford (i.e. a VERY clever man) used to enjoy calculating the probability of all the oxygen molecules in the room spontaneously shooting up to the corner of a room. It is a statistical possibility, but no need for the oxygen mask yet! Black Swans may be popular - but will never be seen on most duck ponds.

So - the Lottery numbers will be in the range 1 to 42 and the world markets will probably go sideways to gently up with a possibility of sharp falls. Government Bond yields will continue at derisory levels and Corporate Bond yields will continue to reflect the underlying credit risk.

Helpful? Though not - but to quote the X-files, The Truth Is Out There.

Now would anyone like to buy some snake oil before the Dow hits single figures??

Dum Spiro Spero