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Stock markets at record highs despite the current state of the economy. When does this bubble burst and what will be the trigger?
Stocks are high because returns on bonds are so low.
As soon as interest rates start rising then stocks will fall as people move their money back into other forms of investment.
Or when govts around the world realise that QE has undesirable consequences.
Or when govts around the world realise that QE has undesirable consequences.
+1
when they panic and realise they have been gambling with money based only on demand - it works as long as they all demand it ss they keep the price hign but it is not real- see also DOT COM bubble, sub prime etc
The next one? Easy tiger! We're still in the middle of this one.
We now seem to be doing the boom and bust cycle without the boom.
Thankfully they seem to have fixed the inherent, fundamental problem with capitalism. From now on only the top 5% of earners will benefit from any future economic growth, as everyone else's incomes shrivel. In fact....thinking about it.... sod it!.... we don't need any economic growth to do that... the top 5% can just increase their wealth massively disproportionately anyway, at the expence of everyone else. We'll call it 'austerity', and say there is no alternative, or any Plan B. We need to 'rebalance' the economy after all.
Welcome to the mind of Mr G Osbourne
The main driver of the financial crisis was the combination of excessive liquidity and very low interest rates. This led to the so-called dash/search for yield and a massive mis-pricing of risk globally. Of course, the powers that be use every opportunity to disguise this fact and to place the blame on other factors. Why? Because they are repeating the same mistake.
We are in a hidden period of financial repression - interest rates kept below the natural rate and indeed below real rates of risk-adjusted return. This will help erode the debt burden over time. It will, of course, hurt savers in order to rescue debtors. But that is a deliberate policy choice - hurt the prudent to rescue the imprudent!
Stock markets rallied because valuations were very depressed early last year, liquidity was high and the Euro-elite placed a size 13 to the can, sending it temporarily down the road. The poor people who leave their Isas to the last minute will probably have missed much of this rally as valuations have normalised (albeit they are not excessive) but sentiment is prone to the on-going bad news on the economic front globally.
The next trigger? Italy leaving the Euro. But catalysts are often small events that in themselves should not cause harm but their surprise creates the domino effect. Perhaps the desperate situation that Cyprus finds itself will be the actual catalyst, rather than Italy, in the next wobble?
We now seem to be doing the boom and bust cycle without the boom.
It was Brown that kept going on and on about ending the boom and bust cycle (apparently running the economy by using the word "prudent" in every sentence he uttered). Looks like he got his way 😉
This isn't capitalism, it's crony capitalism. The markets are manipulated to the extent that the whole game is rigged (even more so than usual).
If this were capitalism in 2007/2008 the bad banks would have gone to the wall. The FSCS guarantee (for what it's worth) would have covered most peoples savings. We'd have had a load of pain and quite possibly by now would be on the real road to recovery. Instead we the taxpayer are on the hook for failed banks, failed businesses, and failed households.
Privatise the profits and socialise the losses. We're going Japanese because there is no political will to lance the boil.
teamhurtmore, really enjoy your posts on financial matters. They seem spot on to me. Are you a professional in the industry?
No political will to lance the boil? Oh, there's political will alright. Just in the opposite direction. We have a chancellor who seems completely ambivalent about the nations finances, and everyone's living standards, to the point of shrugging disinterest
Yet on the same week a state owned bank pays out £600 million in bonuses, having reported a £5 billion pound loss, he's exorcised and angry enough to be off to Brussels to defend, as a lone voice, paying the very people who bankrupted us [i]even more[/i].
I'm actually starting to reappraise my opinion of Gideon. He's clearly engaged in some kind of crazy, satirical, beyond-Python situationist sketch. When he finally comes clean and reveals this, its going to be hilarious!
From now on only the top 5% of earners will benefit from any future economic growth
Sure it's that high:
Blahblablah - thank you! Others would, and no doubt will, disagree with you 😉 Yes, for a long time, but no longer. Gave it up to do something far more worthwhile, although I have a number of advisory/consultancy roles that allow me to keep my hand in, just in case I got tempted back. Horrible place to work now though!!!
Binners - be serious! Osbourne is making mistakes but the idea that he has no concern over the nation's finances is stretching it. If anything, he has been (in hindsight) too concerned about the international perception of our finances. On top of that he has hardly implemented any of the policies that he has been accused of!!! Just consider, the number of "closet" tax rises that there have been since 2010 and the lack of genuine supply-side reforms?
I Hate thm's post's personally. His reasoned, informed and thoughtful contributions have no place on an internet forum. The sooner he learns this and starts some foaming at the mouth, irrational ranting, the better 😉
BLLX,,, that better 😉 !!
Actually have to love and leave you there. Personal celebration calls for an extended lunch with an early start!!
Um, globalisation.
Maybe we've just had our time at being the richest and the rest of the world is catching up?
Maybe lack of growth is the new normal?
Any sustained period of growth fuelled by debt rather than productivity increase must be temporary and get corrected at some point. The recent boom years were sustained by debt, and we're just getting corrected at the moment.
We can still have future growth, just the only sustainable type is that through productivity increase.
Next big crash? Me, Sherwood Pines, Sunday.
Saturday! I'll be out on the bike for the first time in ages. Bound to be arse over tit at some point.
Not for a while yet
Get on board
Research yday S&P up almost excactly the same % as corp earnings from the lows.... and the S&P PE is about 10% lower now, than 2007 top.
But the biggest reason to buy it... is that you lot and most think it's about to crash.... kinda like the opposite of hearing a tech tip in 2000.
The FTSE 100 and even the 250 don't have much to do with the UK economy, they're global market indicators and with the US coming out of recession and China having a soft landing the markets are feeding off that.
Stocks are high because returns on bonds are so low.As soon as interest rates start rising then stocks will fall as people move their money back into other forms of investment.
I don't know where you get that idea, interest rates have been low for years and bond returns over the past couple of years have been pretty good. Bonds dropped early Jan on the worries of interest rates rising and that's when stock went up the most due to the so called 'rotation' from bonds to stock.
[url= http://www.telegraph.co.uk/finance/markets/9928507/FTSE-100-may-hit-7200-Goldman-Sachs-forecasts.html ]Not for a while if this is to be believed.[/url]
Sounds like the snake oil salesmen are out in force. Get some mugs to buy at inflated prices just before the bubble bursts...
when do all the debt purchase type aquisitions need to be refinanced? If the banks don't want to give money how do debt loaded companies refinance and maintain profitability?
We can still have future growth, just the only sustainable type is that through productivity increase
Remember the world is finite, how much growth can you actually have? There is only so much crap you can sell to people, there is only so much energy available to product that crap. etc etc
Memo, there's a book about major growth coinciding with the availability of cheap energy. Can't remember the name though.
I guess that means we are going to bumble along the bottom until about 2025 when we will hopefully start to see commercial fusion power.
I read a book that corellated economic depressions with high oil prices. Given that oil, despite the current economically depressed demand, is still relatively expensive and govts are intent on making it even more so I think we'll consider bouncing along the bottom as we are at present to be a major achievement.
S&P ... just 10ish points away from all time high
Think it may push through that today
There are just NO SELLERS
Kamakazie - MemberI guess that means we are going to bumble along the bottom until about [b]2025[/b] when we will hopefully start to see [b]commercial fusion power[/b].
can i have some of your wild optimism please?
Ro5ey, if you look at the very low volumes traded, it would suggest that there are not that many "real" buyers out their either, but at least the buyers > sellers!
Lex (FT) had a good article this week on the extent to which corporates have deleveraged - we know governments and households (ex-US) haven't and corporates havent either. The crisis was essentially a crisis of excess leverage and that remains true today - that doesnt stop the market going higher in ST though! But may be constraint on LT bull trend.
GS make their name by making bold calls BTW
esure is being floated next week - I was initially tempted but then realized if it's been offered to the public it can't be a good deal. If it was a good buy the institutional buyers would snap it up and they wouldn't have to revert to off loading it on to old mug public. The more public flotations there are the closer to top of the market we get.
True enough re volume
But that's because they are all waiting for it to come off. No know likes buying at the top. But will we see that small correction?
It was ripe to come off a bit early this week, after the job figures late last week but nothing happened.... Hence my no sellers point.
Hey I normally make more money with the market coming off... but that doesn't cloud my judgement on letting the trend be your friend.
Or when govts around the world realise that QE has undesirable consequences.
Spraying water all around your living room has undesirable consequences. However if your living room is on fire, it's still the best thing to do.
From now on only the top 5% of earners will benefit from any future economic growth, as everyone else's incomes shrivel.
How does that work then? If we're all poor, we won't be able to buy any stuff so the top 5% won't be able to make any money out of us.
I think maybe you need to go on an economics course or something.
Ro5ey, I will stick by my prediction that the correction (small or otherwise) will come after the end of the FY ISA rush!
I accept the no sellers point BTW but am still watching Cyprus and Italy.
I've only spoke of S&P.... not sure the States are being held up for ISA monies 😯 😆
2nd week of april not far away from May and you know what they say about that, so you may well be right.
But that's 3 weeks away and if we continue like we have been thats good for another 3% 😯 .... surely that can't go on... but if it does then I'd still not sell it.
How does that work then? If we're all poor, we won't be able to buy any stuff so the top 5% won't be able to make any money out of us.
which is where debt comes in, get everyone to buy on credit.
I'm really not sure why you all think the FTSE should be down?! What does the UK economy have to do with that?
Serious question.
Do you know where most of the FTSE100 revenue is made?
well I'm about to hoepfully buy a new house so expect the crash to happen a week after that just like last time.. I'll let you know if/when I complete so you can set your watches.. Buy high, sell low thats my motto 😀
From now on only the top 5% of earners will benefit from any future economic growth, as everyone else's incomes shrivel.How does that work then? If we're all poor, we won't be able to buy any stuff so the top 5% won't be able to make any money out of us.
I think maybe you need to go on an economics course or something.
In that case I think you may need to go on a 'registering whats happening around me' course. The majority of peoples pay has been stagnating for years. Have you noticed any restraint on pay rises or bonuses at the top? regardless or performance and economic results? [url= http://news.sky.com/story/1059684/boardroom-pay-up-6-percent-last-year-to-400000 ]Top directors are showing little restraint while millions of workers are suffering real-term losses to their incomes and are really feeling the squeeze on their living standards. FTSE 100 directors' pay rose over seven times faster than average wages in some cases last year, with rises well above inflation.[/url]
Catch 22 here. Need to grow the economy to generate revenue to close the national debt. Need to invest to grow the economy, which means borrowing more, but the country has run out of credit. I've said before in a different post as soon as interest rates rise, our debt bill will become too much and we will end up like Greece. Analgous to interest rates rising on your mortgage and you being unable to repay the mortgage.
Analgous to interest rates rising on your mortgage and you being unable to repay the mortgage.
No its not, its nothing like that.
In that case I think you may need to go on a 'registering whats happening around me' course.
I'm not disputing that it has been happening, but there's a question over how long it can continue to happen.
Absolutely agree with you Molly. But you're trying to attribute logic to people (and a system they've created) who's limitless greed blinds them to everything, even when its ultimately self-defeating
Don't think so. It's in everyone's interests to grow the economy overall.
I'm not disputing that. But whats in question here is how the proceeds of that economic growth are distributed. And the post-war consensus that we, as a society, all benefit now looks pretty ridiculous.
For a long time now there has been no real-terms income growth for anyone other than those at the top, who have seen their 'earnings' head into the stratosphere. Our real incomes are genuinely contracting, year after year, unless your bloody lucky! Or one of those at the top
The present system is ****ed, and serves the interests of an ever smaller group at the top. Just look at the escalating inequality in our society. IMHO it seems that western economies are being run exclusively for their benefit
And the post-war consensus that we, as a society, all benefit now looks pretty ridiculous.
Really? Compare today to post-war society. We might still be as close to the breadline as ever, but look at what 1940s luxuries are now normal.
Binners for PM. 😀
Molly.... Economic growth - post war - did indeed benefit everyone, and raised living standards for everyone. Right up until we had the joy of thatcherism foisted on us. It then stalled, the income gap started to widen rapidly, with average peoples wages stagnating, then effectively going into reverse! We're having those hard won gains eroded year on year. We're going backwards! Nu Labour tried to artificially cover up this stagnation with tax credits, and fueling 'economic growth' that was just a credit fueled property bubble.
Meanwhile rewards at the top.... Boardroom pay, bankers bonuses etc have rocketed off the scale, despite bearing no relation to actual economic performance (witness state owned RBS paying £600 million in bonuses, despite recording billions of pounds in losses.
As you yourself noted, its a totally unsustainable economic model. But then we should be used to those by now 🙄
When does this bubble burst
Best not to think of it as individual booms/bubbles and busts/bursts. Rather as several booms/busts superimposed on each other. Some of these cycles are obviously interdependant.
So at any point in time there might be several factors proping the share prices up, and several supressing it. So at the moment they're squeezed between investors not investing in bonds and spending all that QE money and the oposing forces of the economy being f****d. Take away those upwards forces (bond rates going up, QE being recalled) and it'd drop, or the economy might recover, that recovery at some point will be temered by QE being reversed or bond rates going up.
The trick Mr Osbornes got to pull is pushing up the market just enough that it doesn't hit rock bottom, but not so much that it slows down the eventual recovery. What a lot of people are calling for is a lot more pushing by 'investment' (aka borrowing), but his oppinion is that this will just shaft the evetual recovery as any recovery will just go into paying off the debt (if he borrows a billion now, that's a billion more + intrest in taxes to take in at some point when there is a sign of recovery). Just look at Japan in the 90's for an economy that never recovered.
Hmm.. but you have to ask yourself if the economy in 1979 was sustainable. I'm no Thatcherite, and I was only 4 at the time, but as I understand it things weren't exactly peachy were they?
but the country has run out of credit.
Not at all. The government has decided it doesn't want to increase it's debt - would be very easy to borrow more if we wanted to.
Molly.... what on earth has that got to do with anything? I don't think anyone wants to see a return to the 70's. But it'd be nice if we could stem the ever increasing divide between the incomes of the few at the top and everyone else. And maybe have a more even distribution of any economic growth. In case you missed it, its not very positive for 'society', if indeed you're one of those who believe such a construct actually exists.
Economic growth - post war - did indeed benefit everyone, and raised living standards for everyone. Right up until we had the joy of thatcherism foisted on us
Well, trying to be historical rather than political here - was it not the case that the pace of improvement in living standards for the common man was in fact unstainable and the 80s had to happen eventually in some form or another?
Well - I say 80s, I don't mean the wholesale destruction of industries and communities..
Binners is right (IMO). One of the favourite rants of my ageing ex-company director father-in-law is how modern corporate governance has completely lost touch with reality and how back in his day, an acceptable ratio of pay between the top and bottom in an organisation was something like 7:1, whereas now multiples of 20:1 are commonplace even in smallish organisations. The whole ethos is morally bankrupt, devoid of any real comparisons of 'value' between the top and bottom, and is economically self-defeating.
The tragedy of the whole thing is that in the past the disadvantaged would have risen up to redress the balance but now can't because they have no politicians who will represent them, no unions who will fight for them, and no communities who will band together and support them. I guess you have to take your hat off to the capitalists and congratulate them on a job well done.
I can imagine some kind of non-party political movement would be a good idea. Just to point out to people how things could be better if we looked out for each other a little better...
When does this bubble burst and what will be the trigger?
I'll take a guess at..... Cyprus!
Give it a week or so and it will be a buying opportunity. Luckily I did a stealthy redemption and a bit of switching to cautious funds at the end of last week. 8)
Have you bought shares in Gazprom? As it looks like they'll own Cyprus by lunchtime 😉
nope cyprus has left Russia so no deal thereNice picture as to who is most in trouble
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Dobbo - Member
When does this bubble burst and what will be the trigger?
I'll take a guess at..... Cyprus!
Hoi, Dobbo - attribution please!!!
teamhurtmore - Member
Perhaps the desperate situation that Cyprus finds itself will be the actual catalyst, rather than Italy, in the next wobble?
POSTED 2 WEEKS AGO #
😉 Without downplaying the seriousness of the situation in Cyprus (see other thread), I have been looking for a pull back. Italian banks as distressed calls in a weeks time?
European banks shares are actually only down 5% on the week, with Spain (valued higher) suffering worse than Italy (down 4%, lower valuations). Unicredit almost back to 0.3x book value - a brave punt if it goes below that level?
The fact that the markets appear to be in denial is a pointer that events will ambush them and there'll be some catching up to do.
Sorry THM, missed that, and it was tongue in cheek anyway!
I think the markets are expecting a resolve as always seems to happen at, or, in the case of the Fiscal Cliff just after the deadline. This one is going to the line, and even a resolve won't be the end of the matter when the banks open and the next phase kicks in.
The government has decided it doesn't want to increase it's debt
But Mr Osbourne has decided that an overheating housing market could be the answer to our dreams! Though where that money will come from is anybodys guess if we're not increasing debt. He didn't sound like he had a coherent plan when on the Today programme yesterday.
Maybe spending that money (that we don't have) on infrastructure would be a better use of resources. Proper social housing, owned by the people (local councils) would help. I remember my dad being a little bitter about the spending power of council tenants in the late 70's compared to his as a house owner. The nation was suckered into thinking owning your own property was the best thing to do in the 80's and it's now biting us extremely hard.
I understand not a single word that has been typed on this thread. I'd love to understand what the **** is actually going on and what all your jargon means.