UK GDP 20.45% down in April - FTSE up 1%

The headline is a great example of cognitive dissonance.

Market commentators will say the drop is already priced in. Yet the market is down just shy of 20%  from its peak of 7674 on 7th Jan 2020.

How can we have removed 20% of the economy and the market still be happy - it is not priced in at all.

The next argument the commentators will use is that this is not only priced in, but the markets are already looking to the future bounce back. I say this is very unlikey to be fast bounceback. In the medium term I am sure there will be new restaurants and coffee shops, in the short term a huge amount are dead and only exist now because of the wasted furlough support (wasted as in it is being used to support companies that can't make it, not as in I want people jobless and poor!).

IAG and EZY - two major listed airlines are indeed down 50% and of course the market is also made up of companies doing well in the pandemic. But 50% down for airlines is optimistic, I am very bearish on their prognosis - flying will be very limited for a long while to come and appetitite for it will take years to come back. Indeed, if capacity is not used in the next quarter they will be a fraction of the size they were pre-crisis.

We have the Government spending money, the Bank of England pouring liquidity in the background (which finds its way to assets, like shares), a closed economy and not quite sorted pandemic.

It will be very rocky, but I stick by what I have been saying for a couple of weeks, the end of this month is key. Quarterly rents, these GDP numbers and their quarterly companions and the move to economic re-opening as much as it will be possible for a few months will all be in place. At that point we could easily see the big market correction - or, as ever, market irrationality and acceleration. My hunch is the former.

Not much of a Santa rally

Amongst the many things which Brexit is allegedly responsible for, one of the more real ones is the affect on sentiment. With so many remoaners In the Media and the City, not to mention the Government, positive sentiment is really lacking.


This can be seen in the very poor performance of the FTSE100 this year. At a likely growth of around 6-7% for the year it trails it usual comparators. The Trump inspired Dow is up nearly 20%, same for the Far East exchanges. Even the EU exchanges are up nearly 10%, even sclerotic France.


This is driven by a number of factors, the slowing UK economy which will have around 2% growth, not bad but slower than most of the G20. Of course, according to the Remoaners, we should have had a cataclysmic collapse by not but funnily enough has not come to pass.


But this negative sentiment has real world impacts, the Bank of England is slow to raise interest rates due to its remoaning fears, trailing the Fed and the ECB - as such, returns remain lower in the UK. FDI has also dropped a little  due to poor sentiment (which it always would in real-terms after a big devaluation) which has probably reduced growth. Even reduced immigration (also partly sentiment induced) reduces growth, less people coming to the UK reduces the overall output as we measure GDP and so adds to a slowing GDP picture (although, as we can also see, it really helps Government finances, already recovering more rapidly than expected and with little comment as to the obvious cause).


Sadly, this picture is unlikely to change, with remoaners in full voice for a second referendum to end Brexit. 2018 will be a tough time politically and this will continue to feed into poor sentiment. At some point a relentlessly poor sentiment can in fact lead to a recession as business confidence collapses - luckily as a trading nation the external environment will keep us out of there for sometime yet as companies do well overall, despite politicians trying their best to talk them down.

Can we make money if the polls are right?

There is a website which I peruse regularly called politicalbetting.com. The folk there seem to make a nice turn on betting on all sorts of elections. A very insightful bunch they all are and I wish them well.

The challenge though is that going to a bookie to place a bet is not a fair game. The bookie can refuse large bets and indeed, refuse to take the bets. As such I think to make an decent money a lot of money has to be sunk into the game a long way ahead of time.

Where investment is unlimited is in the equity and and forex markets. Here you can invest what you like in split seconds and trade out seconds later too.

The recent polls point to a very hung Parliament. In fact, Election Forecast appears to have it that no Government will  be formed at all. The Tories on 280 and Labour on 260 mean the SNP can prevent any Government being formed.

My take on this is thus:

- The Pound will weaken 2-3% on this news as it emerges at the end of next week. The Pound has been rising the past month, so for once I can't see that Government instability it priced in. 

- Similarly the UK markets, up at all time highs when the chances are a very left wing socialist coalition will get into power or alternatively that no Government will be formed.

The markets tend to look at past performance and the UK has not had Government formation problems for some time. I am not suggesting there will be a crash, but a couple of hundred points off the FTSE and a small decline in the Pound throws up some interesting potential.

I am on a long dollar/ short pound ETF for starters. Just thinking about which sector will do the worst, likely energy utilities and banks I would imagine?

Anyone interested in following this strategy?

Sell in May and Go Away

Today is June 1st 2009. Any historic look at the markets will tell you that between now and October every year, there is an almost guaranteed annual decline in the value of stocks and shares.

However, this year is of course different (as always!), as we are in the midst of the worst recession since WW2 (and off topic, I agree with this article strongly, suggesting politicians have forgotten all about the economy as they wallow in their own self-pity).

And yet for all that, the markets have surged 28% since march 2009. All on the back of nothing else other than everyone is not going bust. Banks and Property share prices have rallied from near death to stable. Commodity prices have come back up, with oil at $66 up from its low of $33 and this has pushed up oil and mining stocks.

Is this correction now priced in? It has to be, there is still so much bad news to come in the commercial property sector, in government debt, in unemployment, in demand for consumer goods, in mortgage supply.

To top all that, inflation has not gone away like the Bank of England said and we may well be poised to raise interest rates before the end of this year, which really will stall any recovery.

Now is a time to think carefully about ones investments and I am going to review mine. I will update here when the decisions and changes are made.

Sunday Return

I am back online today (Cityunslicker here) after two weeks of no real blogging. Quite refreshing, well partly anyway. How can one spend to much time with their wife and kids after all....?

Anyway, I return to see two things that have surprised me after my diet of SKY news for an hour a day. Firstly, the FTSE has hardly moved, despite the clear end to any hopes of economic resurgence. Last time I looked Chrysler and GM were going bankrupt and British Airways was announcing horrific losses.

Also somehow Labour have become even more unpopular than ever. This is some achievement as they do not actually seem to be doing anything at all, which generally by reckoning is the best thing politicians can do. I saw Gordon Brown on the Andrew Marr show this morning and he did quite well given the oddly tough questioning. His delusion about his own success and intelligence is something to behold. I think Orwell warned us about lefties like this...

Oh, I think I still have my job too, confirmation at 9am hopefully.

Death Spiral, the sequel

Back in September and October last year, the markets crashed on the collapse of Lehman Brothers. Th governments of the world decided that it would not let that happen again, so now we have round after round of bailouts to keep zombie companies like AIG and Northern Wreck going.

But this week is a new turn for the worse, markets are falling precipitously since last Friday, the FTSE is down over 10% in 3 days; many are saying they see little support for prices until they hit 3000 or less. Even gold is falling again as deleveraging kicks-off with renewed vigour.

In the midst of this, Ben Bernanke is sounding off about US Fed policy, Brown is being snubbed by Obama and throwing his phones at the wall in the Whitehouse ante room.

Meanwhile, the markets fall and fall. The Government intervention is cack-handed and ill-though out. Look at the current Lloyd's debacle, the company was set to announce the Government asset insurance terms on Friday, here we are 3 trading days later and the share price is down nearly 50% on no news. Terrible PR handling, terrible Government.

The markets are the telling the UK Government what it thinks of its plans, just wait until the bond markets catch-up. We need a concerted plan, waiting for the G20 in April is a bad option.

Market's 'signal passed at danger'

The FTSE has plunged over 3% this morning on news of HSBC's huge rights issue. Together with more bad news from America and Government dithering over Lloyds Banking Group, it has been a grim morning and it is only just 9am.

Currently the FTSE stands lower than when Tony Blair came to power. Well done Labour, officially 12 wasted years and counting.

The fall since October is approaching 40% alone. Those that study charts would tell you that we either bounce from here or go a lot lower, possibly until the FTSE starts with a 2....

UPDATE: There is not much of a bounce in this dead cat. See here, FTSE ended down over 5% on the day. A re-test of 2003 lows looks very likely as the next step, 10% below where we are today. Here is hoping for a rally instead; perhaps 5% could be capitulation...