Sexy shares: a surefire success?

'Sexy' shares (or shares always on people's lips) remain a surefire success for those who care to do their homework, even though a foolish world is rapidly careering into the abyss as central banks dither. So far, governments have hardly been supplying the right kind of economic leadership to fight the blizzard which is threatening to buy all the world's stock exchanges under a mantle of economic nonsense.

Has the US learnt nothing from the bitter happenings of the 1930s, when Wall Street broker suicides were a daily occurrence? At the Davos meeting in Switzerland where international bank leaders met to discuss a parlous world financial situation, the dirty word was 'protectionism'. It was one of the chief wrong economic policies which destroyed 30 per cent of America's GNP, provoked world depression, and the course towards WWII.

'Protectionism' gives the name to the economic policy which former prime ministers Dom Mintoff and Karmenu Mifsud Bonnici imposed on Malta in the 1970s and early 1980s. We all know this led to impoverishment and that, once it was abandoned by the present government, it resulted in Malta doubling its GNP.

The first administrative action of new US President Barack Obama has been an attempt to protect US steel producers against foreign competition. This is ridiculous and will lead to a further significant contraction of a world economy already in severe difficulties.

This is the 'beggar my neighbour' policy of the 1930s. Obama's first days in power have not been totally negative. He has spoken courageously against the malfeasance of bankers. He has stated from the august eminence of Capitol Hill what lesser banking personalities have been saying for the last year: it was impossible to make out what liabilities banks are hiding because of lack of balance sheet transparency.

No great banks are, as yet, trusting each other. This is a situation which is persisting and preventing banks from lending to each other.

A massive credit crunch has been created, which we in Malta are beginning to experience in a significant way. Money is not created by central banks. It is entrepreneurs who create money. Businessmen take loans, setting the money multiplication process in motion.

In these circumstances, the price of gold and silver can be expected to do better than some one-time famous sexy shares like Barclays and UBS. There are many more of these shares. When the share price of Barclays and UBS collapsed recently to pitiful lows, the bullion price of gold has remained steady. 'Questor' (Carry White) advised readers of the Daily Telegraph to grab "some gold and wait for the price to jump". His advice should be pondered.

Sexy shares are never, even in good times, a surefire success. They are so to those investors who seek the exciting game of unraveling the path of the financial cycle.

Barclays shares some days ago hit an obvious all-time low at 47 per cent. They advanced in less than a week by over a 100 per cent. An investor who fails to take a 100 per cent profit immediately is missing the chance to become rich.

Mr Azzopardi Vella, economic consultant with DBR Investments Ltd, has promoted the Malta Development Fund and advised S and P.

johnazzopardivella@hotmail.com