Thursday 4 September 2014

FTSE nears 1999 highs, but for how long?

Of all the times to do this, at the beginning of September, on anniversary of the Wall Street Crash no less.

As most people know, September is traditionally when we have big stock market corrections, macro conditions in the world at the moment are the most perilous politically in my lifetime. Economically, China is slowing, the Eurozone really feeling the effect of sanctions whilst UK and USA run along on QE funded property fantasies.

Whilst it seems unlikely there should be a huge crash now, a correction is certain in September and October - will the FTSE finish the year at all time highs - it should on any kind of historically analysis (on an inflation basis we are 30% off real highs anyway).

Somehow I doubt it though, I can see the year ending for the market at around 6700-6800 after an Xmas recovery from a very rocky patch later this year.

Next year I foresee being very bearish.

*And this is without a Yes vote in the Scottish referendum which would be around 5% off the FTSE in the short term I would imagine.


Wolfie said...

Fundamentals play no part in pricing so the sky will be the limit.

Budgie said...

CU, I think the hit from the Scots seceding from the UK will be much more severe than a mere 5% down on the FTSE.

There will be a constitutional crisis - certainly there should be an immediate general election in the UK without Scots' participation. There will be a currency crisis - the £ is wobbly enough without the thought of the likes of RBS and BoS printing wildly. As well as at least 10% off the FTSE, it would not surprise me to see it below 6000.

Central Services said...

But the Scots aren't leaving.
They are staying.

And have already been granted additional rights and tax raising powers for doing so.

So no hit from Scotland. Its already been priced in.

Budgie said...

Central Services said: "But the Scots aren't leaving. They are staying." This is your prediction, I assume?

Personally I predict the opposite, and have said so for months. But my comment above was intended to be an implied *if* the Scots secede then ..... such and such consequences. Sorry if that wasn't clear.

The Scots have not been granted anything, it is only wind from Cameron. Even if the Scots vote to remain part of the UK, the union is damaged.

CityUnslicker said...

my take BE was Scots are only 5% of the economy. Re the FTSE, a weaker pound would help, so many earn their money in dollars and are reporting weak earnings due to an overly-strong pound (its 82.7 tradewieghted - i.e. 20% over where it should be).

A falling pound would be good for the markets. Might drive inflation. the political hit is maybe over 5% but reduced by the practical impacts.

BE said...

CU we are in agreement as usual. The £ must be a bit softer without the oil and the 51% of Scots who won't leave on the 19th, which is good for some industries and firms. There will be an overshoot of course, but we could use a bit of monetary stimulus right now given that our bank base rate is ten times that of the Eurozone!

I don't really follow the stock market but I keep reading that markets around the world appear very confident, which doesn't chime with our day-to-day experiences.

Steven_L said...

Then stop playing the index and pick the right stocks.

BSkyB, Glaxo, Portugal Telecom, Catlin Insurance and Thomas Cook.

Hurry guys, you don't wanna miss the boat!

andrew said...

to me, index values are very closely correlated to the yield on (a dcf valuation) the index.

in other words lots of people with deep pockets treat the index like a govt bond

i have done ok out of that for the last year.

currently i think it is about 3% overvalued, when it hits 4%, it (so far since late '12) seems to fall to about 3% under.

imo the sheer ease of arbitraging between different asset classes means that everything index-like (gilts, equities) will trade in a narrow band - until something goes bang.

a bit early but I forecast a boring '15 in the large (the index will carry on not being volatile), but oddly, individual stock will be more volatile.

hostage to fortune

so i beg to differ, I forecast

MyEuroName said...

With the Europeans starting QE and dismal production and profit figures coming from the continent I see a very rough road ahead for Sterling.

If it is overvalued now, imagine how expensive its going to look to the Europeans when they denude their currency in earnest. But will Cameron run out of road before the election or after?