Stock market and house prices up. Interest rates low. It's the perfect scenario.
Is that the best the stock market can throw at us? A measly 8% correction from the FTSE 100's January high to its January low?
C'mon, you can do better than that. Think about all the worries we've got…
- The threat of default from Greece, and the subsequent pressure on the euro, enough to prompt some commentators to predict the single currency's demise in the years ahead.
- The massive budget deficits in Spain, Portugal and Ireland. Luckily Turkey is in a little better shape, because you can just imagine the fun writers like me could have with the acronym SPIT.
- The threat of higher inflation.
- Continued high unemployment.
- A regulatory threat to the carry-trade (more on this in a forthcoming instalment…)
- The possibility of a hung-parliament.
- The John Terry scandal.
Great Days
But no. Monday saw the stock market's best performance in a month, the FTSE 100 jumping just over 1%, closing close to the magically insignificant 5,250 level.
Doing the business on Monday were a combination of factors, including speculation of a bid for Northumbrian Water (LSE: NWG), a strong start on Wall Street, and better than expected manufacturing news.
Ho hum…tell me something new. If every takeover story doing the City rounds came to fruition, by now there would only be about 20 separately quoted companies left in the UK.
Ryanair (LSE: RYA), the airline people love to hate, but yet keep flying with them time after time, also helped lift the mood of the market. The budget airline raised full-year profit guidance and reported a much smaller-than-expected third-quarter net loss. Less bad news is the new good news. Ryanair shares jumped 7%.
The Brits Are The Laggards
But apparently not all is good in the UK and Ireland. "We're seeing demand return, not quite to pre-2009 levels yet, in places like Germany, Scandinavia, Italy, France and Spain. In Britain, particularly in provincial Britain, and Ireland, there's no sign of that yet," said Michael Cawley, deputy chief executive of Ryanair on FT.com.
What's up with the Brits? Perhaps we're prudently saving money, paying off our debts, keeping on top of our mortgages, and generally rebuilding our wealth. Perhaps we're still very cautious about the economy, worried about whether we'll have a job in 3 months' time. Or perhaps we're too busy to think about a winter break to Stockholm.
House Prices To Jump 20%?
Still, there is some good news about. According to the Centre for Economics and Business Research (CEBR), house prices will rise more than 6% during 2010 and be around 20% higher by the end of 2013.
The CEBR also believes that interest rates will stay at 0.5% until at least mid-2011. Real estate agents and property speculators across the country will be partying like its 2006.
There are, of course, a couple of major problems here…
1) A house price bubble could see the Bank of England raise interest rates earlier than may otherwise have happened, and possibly even later this year.
2) Affordability. Houses are affordable when interest rates are at emergency low levels. They are much less affordable when interest rates return to more normal levels, as they inevitably must.
Worrying Signs
Do you feel like we've been here before? Will consumers never learn? Ditto for banks like Royal Bank of Scotland (LSE: RBS) and Lloyds Banking Group (LSE: LLOY)?
Given those two banks are largely already owned by the government, and this is an election year, a cynic might suggest they'll be splashing the mortgage cash to anyone with a job and a pulse. A realist might get just a little nervous about what's ahead.
But what's the point in worrying? As one of my favourite quotes goes, worrying is like a rocking chair -- it gives you something to do, but ultimately gets you nowhere.
I'm not worried… yet.
More on the economy and the markets:
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