A falling market brings cheaper prices. What's not to like?
Recovery, here we come. From Bloomberg yesterday…
"UK retail sales jumped in July by almost four times as much as economists forecast in the biggest increase for five months, as shoppers spent on goods from sports gear to watches."
Is that a cue retailing shares to move higher? Not so fast. It seems consumers were simply coming out of their saving cocoons to splash a little cash in advance of the World Cup, but in tune with England's poor showing, have now headed back to the trenches to prepare for the government's forthcoming austerity drive.
It makes sense, really. After all, how much sports gear can you wear on any given day, especially now your England shirt is confined to the back of the socks drawer for the next few years?
Confessions Of A Fashion Tragic
And how many watches do you really need? I don't even wear one these days. Perhaps all that proves I'm just not up with the latest fashion trends, as if I needed any confirmation!
But I digress. Vicky Redwood, a former Bank of England official, summed up the reality on Bloomberg…
"Consumers are still in a spot where they've been enjoying low interest rates and a pickup in the economy. Give it a few months and things will change. The economy is going to slow from now on, with the real pain coming when the fiscal squeeze starts to hit, probably early next year."
Just When You thought It Was Safe…
Thanks for nothing, Vicky. Just when I thought it was safe to snap up some of those cheap high yielding blue chips I've been banging on about before it's too late, I'm hit with this.
Hell. What to do now? The economic recovery is going to be choppy. A V-shaped recovery is nothing but a pipedream. SELL.
Yep, that's the answer. Forget the positives. Forget all those new England shirts and all those new Gucci watches. Sell everything now, before it really is too late.
First Home Buyers To The Rescue
And you can forget this positive too. According to Halifax, the number of UK first-time house buyers rose 28% in the first half of 2010. Better still, the share of a new property owner's disposable earnings devoted to mortgage payments was 28% in June, compared with an average of 34% over the past 25 years.
Record low interest rates do make a difference!
The bears will point out the only way for interest rates is up, and these first-time house buyers will get their comeuppance in the years ahead.
If only life, and future predictions were that simplistic. Every cloud has a silver lining. Yes, interest rates will go up, but only when the economic recovery is taking hold. It's the way of the world -- interest rates go up in the better times. You can rarely have your cake and eat it.
I'm no housing bull. In fact, I think property prices are more likely to stagnate in the years ahead. Even during this economic downturn, the average house price/earnings ratio remains above its long-term average.
Give Me A Pay Rise
Throw everything into a giant mixing bowl, stir, add seasoning, and you're still looking at a low, slow, economic recovery. Oh, and just as it happens, it's exactly the same prognosis as yesterday, and last week, last month and even last year. Call me an economic genius, or just call me and offer me £200,000 per year.
What about that pesky stock market? Down 1.7% yesterday on the back of those pesky Americans. Over there, initial jobless claims rose by 12,000 to 500,000 last week, exceeding all estimates. So much for recovery in the world's biggest economy.
"We're in a sluggish recovery", said Hank Smith of Haverford Trust on Bloomberg. You don't say.
Scared
The spectre of the dreaded double-dip recession weighed on global stock markets.
BHP Billiton (LSE: BLT) is so scared by it is willing to splash $40 billion for the beautifully named Potash Corp. of Saskatchewan. Chip giant Intel is positively pooping itself, spending $7.7 billion buying security software company McAfee.
Earlier this week, I contended a compelling buy opportunity beckoned, saying "If I were a betting man, I'd bet we'll have a compelling buy opportunity in the next couple of months."
Yesterday was not that obvious, truly compelling opportunity. But that doesn't mean now is still not a good time to continue filling out your portfolio of cheap, high quality shares. Nor does it mean now is not a good time to keep investing in the market via a cheap index tracking fund.
Stay Ready
Yesterday's market woes are just another example of the market's periodic schizophrenic moods. On a better day, it might have seen a strong UK economic recovery, and bounced substantially higher. But not yesterday. Bloody Americans.
They say a week can be a long time in politics. Just one day on the stock market can shake you out of your convictions. Stay firm. Stay true. Stay in the market, and stay prepared for that compelling buy opportunity. It just got a little closer.
More on the economy and the markets:
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> Bruce Jackson has a position in Intel.
