The FTSE rose for the 7th day in a row. Is it lulling us into a false sense of security?
It was a case of 'Little UK Lost' yesterday as a public holiday in the US saw share trading volumes in London at their lowest daily total since the start of the year.
Can we not think for ourselves? Can we not, for once, take the lead, setting the tone for the US and other major markets to follow us?
I guess not. If nothing else, it shows two things...
1. The US stock market, and the US economy, really does determine the direction of world stock markets, including our own FTSE 100. Forget that 'their' economy is bust, 'their' interest rates are at record lows, and the real action these days is in China. If it's good enough for Tony Blair to blindly follow the Americans, it's obviously good enough for us to slavishly follow their stock market. For now, anyway. But keep watch on that Chinese dragon.
2. In the short-term, the market is dominated by short-term traders, many of whom were likely having a day off, like the rest of America. Does anyone fancy another bank holiday? In fact, how about every Monday being a holiday? Maybe not…
Seven Days Of Bull
Still, the low volume and lack of a lead from 'over there', didn't stop the FTSE 100 climbing for a seventh straight session. Admittedly the 0.2% rise is totally insignificant, but it gives people like me something to write about.
Whatever happened to those good old days, when markets were jumping all over the place, worried about sovereign debt, the euro and a double-dip recession?
How quickly things can change. Seven straight days of gains can do that, as can the FTSE jumping from 4800 at the start of July to the 5400 level it trades around today, a leap of close to 13%.
Life can't be bad, hey? It's even better if you bought Lloyds Banking Group (LSE: LLOY), Aviva (LSE: AV) or even Blinkx (LSE: BLNX), up 31%, 21% and a big 142% in the past 3 months. If only investing was so easy.
Fear Not, For Now
Over in the US, the VIX index, otherwise known as the fear index, has slumped from 34 at the beginning of July all the way down to 21, a 38% fall. The lower the index, the lower the expected future volatility, and by extrapolation, the lower the chance of the market going into another swoon.
Are markets lulling us into a false sense of security? Maybe. But you don't have to look too far to realise it's not all suddenly plain sailing again, like this headline on Bloomberg...
Greece Default Risk Is 'Substantial,' Pimco's Bosomworth Says
In the article, Bosomworth says Greece is effectively insolvent and there is a substantial risk they default or restructure their debt. The current Greek bailout programme expires in three years.
He's got a point, you'd have to think. You can't accuse the bond markets of hiding their heads in the sand, with Greek 10-year debt yielding 11.2%.
Gone But Not Forgotten
Right now, all eyes are on the US. Last week’s better than expected job numbers dominated the news, and the direction of global stock markets. Now summer is officially over, Greece is once more off the radar…for now. As Pimco reminded us, the may be gone, but they are not forgotten.
So, where does all that leave us now? I'd suggest it leaves us almost exactly where we were at the start of this calendar year. We're still looking at slow economic recovery, ultra-low interest rates, high unemployment, coupled with sovereign debt risk and the risk of a double dip recession.
Lo and behold, after all the ups and downs of the stock market, the euphoria of April 5,800 and the despair of July 4,800, the FTSE today is trading almost precisely at the same level as it was at the beginning of this new decade.
And In The Long Term…
And where to now? Regular readers of my musings will know I'm desperately trying to wean myself off the ancient and unpredictable art of prediction. So I won't go there, except to say, in the long-term, everything will be alright, I think. But in the short-term, the American markets are back open today, so everything will be alright. Unless it's not.
Marginally more seriously, tomorrow, I'll look at the prospects for some individual shares, including some of the blue chip variety. As a clue to their medium term prospects, let me just say you shouldn't expect any fireworks. But as with most clouds, this uber-optimist, as colleague Harvey Jones labelled me last week (as if!), has discovered a silver lining.
More on the economy and the markets:
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