To have the FTSE at near enough 6,000 yesterday makes no sense to me. The last time it was at this level — and the graph shows when that was — I said so and I was right.
So I’ll say it again: this makes no sense:
Now I know we have to view things in the round, but let’s not put too fine a point on it and say our economy remains in profound difficulties, largely as a result of government policy. Growth is stumbling at best, unemployment is up and clearly heading much higher, government borrowing is ahead of expectations despite the mantra of cuts, tax revenue growth is weak, and that’s before a massive hit in consumer confidence in the New Year from a VAT rise and the real impact of cuts begins to hit.
In that case it is hard to justify the FTSE being at 6,000 for any fundamental reasons.
The words “speculative” and “bubble” come to mind. And we all know what those lead to.
PS This just confirms my opinion - also in the FT today
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You completely ignore two sets of facts:
1. The index is heavily geared towards companies whose UK businesses represent only a relatively small share of their overall operations. This is especially true for oil and gas, mining and natural resources, pharmaceuticals and banks. The value of these shares is driven not so much by the direction of this small island’s economy but instead by world trade and global economic output, both of which are exhibiting strong signs of recovery.
2. Sterling, in which these shares are denominated has been devalued by around 30% over the last 3 years. Since about 70% of all London shares are held by foreing investors (of which American institutions alone make up 50%), this means that an index at 6,000 is in “real” money, still about 30% cheaper than the last time it reached this level.
If you want to see an accurate market indicator of the performance of the domestic UK economy, you should focus on Sterling. As noted above, the performance has been, and continues to be, poor.
All that accumulated (or expropriated) capital has to find a home somewhere.
I seem to remember earlier this year you were saying it should b at 2,900. The truth is, and you agree with this, the market is almost always wrong. But it is just a game and as long as you buy lower than you sell you have won.
Is it overvalued? It will no doubt drop as soon as one of the leading central banks starts hinting at increasing interest rates. But the FTSE is not a reflection of the UK economy: it is dominated by global miners and the global economy is looking fairly strong. Most miners are up 3-400% on where they were 2 years ago. That’s where the growth has come from.
If I was a betting man – which I am – I’d say we are in the middle of a 20 year cycle of minimal growth in the FTSE. It hit 7,000 on 31 Dec 1999. The thing with the FTSE is simply to buy when it is low and sell when it is high.
You think the country’s financial difficulties are “largely the result of government policy”? I presume that this is hyperbole and that you are not seriously suggesting that the country was not in financial difficulty in May of this year.
You forget it’s bonus measurement time so expect the FTSE to rise right up to New Year’s Eve. Come January the markets will be down again. Your graph beautifully illustrates this phenomenon of Christmas greed.
Whenever has the finance sector reflected the real world?
I have no idea whether the FTSE is at the right level or not, but the poor performance of the UK economy (or in different times its good performance) is of little relevance to it. The index is dominated by a small number of companies, most of which do much of their business abroad, and some of which hardly operate here at all, e.g. the mining companies. It is time to forget about using the FTSE as a measure of British prosperity.
Adam, I assume he is referring to more governments than the current one. It is certainly true that the policies of successive governments have played a large part in the decline of the country. The deeper problem is that the fallacious assumptions and measures of a string of governments are completely in line with the feckless attitudes of very large parts of the population, from welfare scroungers, to credit card bingers, to public sector employees whose work actively harms the country, to rich speculators.
Not many bonuses are calculated with reference to the yearly performance of the FTSE (if any).