This the chart of the FTSE in the last ten years grabbed from here:
Nothing says to me that it makes any sense that the market now has a value of about 5,500.
We're facing the biggest recession for 80 years, melt down in Europe and global warning becoming reality. And the markets still presume nothing is happening.
If you want evidence of irrationality that's it.
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Despite a persistently high level there has been incredible volatility and a quickening of trading. My question is: can prices be maintained artificially high and if they can is it possible that the usual suspects are benefiting from the volatility surrounding these high prices? I’ve read the conspiracy theories around HFT and what it allows those engaged in it to achieve but is this the case?
I think that’s a factor
The other is that pension funds persist in leaving money in the market
And that’s another disaster waiting to happen
Wages are going to remain low if not fall, taxes are going to fall or remain low, this is great for corporate profits. And if we do get a recovery most of those gains will go to corporate profits, and the FTSE 100 is the place to capture them.
I just checked the FTSE100 pe ratio is 9.8 and that gives an earnings yield of 10.2%, thats superb value. source(http://www.ftse.com) this is gonna go much higher, we have in our favour also the presidential cycle and also markets tend to be strong from oct/sept to march/apr.
From your debate with Farage you want to continue the bailouts of banks and you also have believed the banker fear stories.
the ftse100 earnings have on the whole grown for ten years, and I guess the ftse100 is relatively cheap.
Future earnings are what matter
Do you think they look as good as they have been?
Why?
Correction, we are not in a recession and it may or may not happen (if I knew the answer with any certainty I wouldn’t be commenting here, I would be buying or selling stock options). The market has a better view of the world than when the UK was in a recession.
Point #2: mining and commodity stocks happen to comprise a disproportionate element of the FTSE (in proportion to the UK economy as a whole). The 17 mining and oil and gas stocks have performed well due to worldwide demand and they are some of the largest companies on the FTSE (5 of the 10 largest).
Deckchairs is my response to that
Yes, but the deckchairs are probably manufactured in China, not in Greece, Italy, Portugal or Spain.
As some commentators have pointed out, it’s like the moment in the cartoons when Wile E Coyote runs off a cliff. He carries on going for a bit before he notices, looks down and then … the familiar whistling noise as he vanishes towards the bottom of the canyon, and raises a small puff of dust as he hits the floor.
Except what’s going to happen when the markets wake up will be much worse.
GDP figures don’t have a positive correlation with the equity markets, so the fact that we could be heading into a recession shouldn’t be important.
There is also a lot of liquidty out there, which easily finds a home in equity markets.
There just happen to be so very many Wile E Coyotes managing to make huge profits from status quo on or pretending not to admit/notice the true state of affairs on the very short term that they do everything to carry on for another while, to get even richer before the fall…
At last, a thread I am qualified to contribute towards. I would imagine that the brokers identify with the Road Runner and not Wile E. Coyote. The Road Runner is always the winner and Wile E. Coyote always fails. It’s one of the rules of the cartoon. “Fastest with the Mostest” (Dir. Chuck Jones, Warner Bros., January 1960) explains the market’s logic best. Mr. Coyote, staring at the Road Runner standing on a floating rock, holds up a sign that says, “I wouldn’t mind – except that he defies the law of gravity!” The Road Runner replies with a sign reading, “Sure – but I never studied law!”
Certain proof that our economic system depends upon a mass suspension of disbelief. I also recommend “King-Size Canary” (Dir. Tex Avery, MGM, December 1947) for its analysis of the financial sector’s dash for growth.
I’ll just insert this little news story here, which seems to have been under-reported:
http://www.bbc.co.uk/news/business-15657447
Where there’s one…..
Richard,
The answer is staring you in the face. It is because, as you endlessly say, a disproportionate amount of wealth is in the hands of the very few. If 90% of the wealth is held by the top 5% (or whatever the figure is) then a recession that only affects the bottom 10%, and even then only in the EU, is hardly of global significance from a purely economic perspective.
There are lots of shares out there which are ridiculously cheap: gold miners churning out hundreds of thousands of ounces at a profit of over $1,000 an ounce valued on 3 times earnings, for example. I’ve expected the market to lose 25% for most of this year. I’ve been wrong.
Oh dear: you ignore the difference between actual impact (10% may be unemployed) and fear of impact (90% plus)
It’s perception that matters and it will depress markets
And I am certain markets will fall to 3,000 or so, soon, as they did in 2002
if you think ftse is going to 3000 you could set up a trade to profit from it, it will not happen, FTSE is on a 10%+ earnings yield, and this is at the moment of low and falling growth projections.
Past earnings…..
When will you learn it’s the future that matters?
I saw a very nice chart in respect of the Dow last night which showed the current peak-trough-peak-trough pattern is almost exactly what it was in 2007, following which the Dow went from around 14,000 to 7,000. So a 50% drop is feasible.
However, all this about the market being rational or irrational is nonsense. The market is a reflection of the perception of its participants at any moment in time. We know the perception will be different tomorrow and the day after. The only thing that matters is what your position is vis a vis the market. As you have said before, the whole thing is simply a betting mechanism.
But mining is so heavily weighted in the FTSE and arguably so undervalued on fundamentals that that it could almost single handedly keep the FTSE at the current level. If gold goes to $2,000+ the cashflow from companies like Petropavlosk becomes unbelievable.
And gold has no value at all
Dear Richard Murphy, from listening to your radio interview with Nigel Farage I think you have swallowed the banker propaganda about the Euro crisis, here is a good article about the real situation.
The Road to Serfdom
http://neweconomicperspectives.blogspot.com/2011/11/road-to-serfdom.html
Well actually I agree with that
But it does not avoid the fact – I think deliberateLy engineered – that as the same banks who have created this crisis also control High St banking we have to bail them out
Which is why I have argued for splitting banks and creating new forms of bank
In the Farage discussionI simply recognised this is a current reality
But I them say nationalise NI dull, strip out toxicity and only return to the private sector under the most stringent of conditions, which would also keep seignorage in state hands.
I see through all the banks’ arguments
I also live in the real world
The FTSE is no longer a reflection of the UK economy as by far the majority of the company profits are generated outside the UK. The purely domestic compoenents of the FTSE are already pricing in at most zero growth, just look at the banks trading at 50% of tangible book value. There is no way that global economy is going into a recession, so corporate profitablity for FTSE companies will still grow and at a PE of less than 10x, it is not very expensive. Plus with a forward dividend yield well over 4%, with gilts at 3%, it also doesn’t look expensive.
No way recession — are you mad?
Someone aked me a while ago how far I thought the FTSE would fall. This was when it was down around the 4500 mark prior to the great EU salvage plan. My answer was that I thought a fair valuation was around 3250 (based on a viable earnings multiple) but that it wasn’t likely to get there. Why? because there’s a load of money out there that has nowhere else to go. Savings rates are poor, sovereign debt yields are poor and risky. The property market has stalled because there’s nobody coming in at the bottom. People are still buying shares because there’s nothing else to buy.. and with the spectre of inflation, strong shares afford a modcum of protection largely unavailable elsewhere.
Many of us have little option but to buy slugs of shares every month because we are making private pension contributions. That’s a steady flow of money into equities that rarely stops along the way to consider whether it’s a rational choice.
You’re right to say that it’s the future that matters.. but the future for equities seems brighter than the future for everything else.. in the kingdom of the blind…
Your analysis of why the market keeps recovering to collapse again is remarkably similar to mine
See ‘Peoples Pensions’ from 2003 which argues exactly what you have said