I put this question to the prooners within the "crisis what crisis" thread by el grifo a few weeks back, but alas there were no takers
I watch on a daily basis, the various main stock markets of the world and apart from a few blips downward in the last few months, they just dust themselves down and carry on rising ever upward it would seem.
Just focusing on the FTSE and the UK, it totally perplexes me that there is more or less bad or at least disconcerting news about the prospects of UK PLC right now and likely to continue in the next few years, yet..... the index just keeps climbing. The 'motor' of the UK, that is to say property, is apparently going T.U after booming for the last decade, manufacturing is in a bad way due to costs and lack of vision from the government and inflation is rampant due to the price of oil, just today over $127 per barrel and of course basic commodities.
Now i realize that there is a lot of speculators warping the market with huge forward positions of particular commodities, BUT...... how does the market go up when all around is (real) bad news, the spectre of hundreds of billions of pounds of bad debt hanging around, where the banks are saying one thing to the public yet between themselves are lending VERY cautiously (the LIBOR rate)
FTSE just closed at 6305, 20% more than a month or so ago.........
Is it that the companies that make up the top 100 are unaffected by the UK economy because they are multinationals ? I know that a few of the posters here are at the coal face in different departments in the financial world, so perhaps they might like to give me a laymans explanation.
Sentiment. It's all down to sentiment. The 'city' is not really hurt directly by the housing market. They are doing just fine. They fooled themselves for many months about the bad debts situation. It had been there for many months already - they were just doing fine. They are continuing to fool themselves. When they realize the error of their ways the market will be effected and you will see a load of 'city' types expressing their surprise that it wasn't effected sooner.
Your right Flap5, there is a huge amount of sentiment in the market.
I was this last week at an event where the great and the good of the private-equity industry were present and compared with the same event 1 year ago things were perceptibly more chaste, you could feel it in the air, a sort of crestfallen energy. These are the guys and gals who up until recently were putting together massive deals in the UK and Europe with frankly staggering rewards.
Perhaps it was due to them all being permanently jet-lagged from all the flying that they have been doing to countries where the opportunities are still plentiful, such as the far-east.
Market sentiment is indeed a general indicator of enthusiasm ~ or lack thereof ~ in a market. A valid question is, "How do we measure sentiment?"
There are various methods used to analyze sentiment in a market, some involve complex mathematics, others use "eyeball" and gut-feel. For anyone interested in gaining a sense of market sentiment without the variability of less precise measures but without needing a graduate degree in mathematics, I recommend the following:
What percent of issues on, let's say the FSTE, are trading above or below their 200-day moving price average? That is, averaging the price of the stock over a 200-day period, is today's stock price higher or lower than that?
If this calculation is done for all stocks trading on the FTSE, are more than 50% of stocks trading above their 200-day moving averages, or below? It follows that 70% of stocks trading above their 200-day moving average indicates a happier market than 70% of stocks trading below it.
Back in December of last year, prior to the recent "bounce" only 18% of NYSE issues were trading above their 200-day moving average.
Having back-tested this against all US recessionary periods following WW2 (average recession length = 10 months), I find it a more accurate indicator than looking at absolute NYSE, FTSE, etc, index numbers alone. And the number's not terribly hard to find on the web They use exponential moving averages that give greater weight to more recent activity. That's a more accurate meter.
There is a great art in being able to 'read' a market. Takes years and years to master, which is why so very few are able to. Once mastered, you understand why they move (and it's not why you think they move), and (more importantly) when they move, and in which direction they will move.
If you have the luxury of being able to devote yourself to mastering this, you may finally be able to understand why everything which is printed in newspapers and said on TV ... is complete and utter bo**ox. It's all designed to confuse, with smoke screens and mirrors aplenty.
So you see, it's only confusing ... because that's the way they want you to view it.
Now, reading the market is a black art, that's for sure and you know that the people at the sharp end have forewarning of incoming fiscal tsunamis well before the rest of us. And yes there's sentiment aplenty that steers the markets up, down or sideways depending on confidence at the time.
If i could nudge things back onto the UK market situation and ask the question again, how is it possible that the worth of the companies is going up again whilst the dark clouds are gathering ? Is it that these companies are bomb-proof or that they have next to no exposure to the Uk economy ? Is it that they have downsized so that they are 'lean and mean' ? (i can't imagine that!).
It's just that simply (from my viewpoint) manufacturing costs are soaring and don't look like they are coming down anytime soon, customer base is shrinking due to less discretionary purchasing due to higher living costs (therefore less business), credit costs climbing (affecting expansion and renewal of equipment), internal costs climbing (due to H&S, workers rights and so on)........ and that has got to touch the bottom line in real terms. Yet the considered worth of the companies are going up
Now i realize that these are diverse companies in differing arenas but in general terms they all make their money by providing services that you and i want, be it a coffee in the mornings up to outfitting our fashion whims and where we live at the other end of the scale.
I get a bit bothered when I realise that 'Futures' markets and Hedge Funds are just market speak for irresponsible gambling with my money!
And as for funds that lend my shares to other funds to sell them, buy them back at a lower price, artificially reduce the value of shares etc. etc. I despair!
Sorry AcroChik - I do realise that my knowledge of the financial world is abysmal but why does someone who lives in a beautiful part of rural Victoria, Australia and has his money here too, have to feel the pain for some grossly irresponsible mortgage lending in the deep south of the USA?
The stock market is relatively buoyant at the moment considering the general state of things.This could be in part a result of property being seen as a relatively bad investment and money moving from that sector into stocks.After all if you are sitting on a pile of cash you have to put it somewhere and shares will bring you a better return than stuffing your mattress with the cash. Probably sleep better too.
The London markets work in the same sort of way as others around the world, such as the US markets. (Just pull up a daily chart of the FTSE, Dow 30, S&P500, and you will see that they work in synch with each other.) When one rallies, they all rally. This is an important fact to remember.
This therefore is your first clue that whatever is happening within individual constituents of the FTSE 100 is somewhat irrelevant to the overall trend / direction of the market(s). If it has been decided that the market will rally, then it will be rallied, come hell or high water.
There is an old adage that says that futures lead the indices and the indices lead the individual stocks. So again, whatever is going on within a constituent of the FTSE 100 or Dow 30 will pale into insignificance when viewed as the markets overall.
The subject itself is enormous, and it is therefore quite difficult to give a snapshot in a way which can easily be understood.
It absolutely, positively depends on what people THINK it means. Equities are just cash with a better Registry. It also depends on the resiliency of capital infrastructure and resource reserves. The Economy is built on trust, no matter its condition. It is an axiom that trust is inversely proportional to desperation. Keep in mind that admitted fraud, Alan Greenbeam, spoke eloquent nonsense to the Electeds on Capitol Hill, with impunity, and, well, so far so good. "Inflation Concerns"? My kneecap, there is no longer a cash piece of the capital Pie. Believe it or not, if we all agree to harrumph and carry on, no harm no foul.