From e.g. The Telegraph, "...the FTSE 100 had its best April for five years thanks to a strong rally by the natural resources stocks."
Hmmm, let's look at a longer term chart:
To paraphrase Newman and Baddiel, that's your dead-cat bounce, that is.
Thursday 7 May 2009
That April bounce in perspective
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5 comments:
And zero return 1997 to 2009. Doesn't it just how Nu Liebours boom was a complete chimera. A boom based on a credit fuelled bubble with no real wealth creation at all.
That's not adjusted for inflation though is it Mark?
In 1985 a pack of Polo mints was 8p in a sweet shop, you're looking at paying 5 times that now.
I reckon good quality stocks (I'd suggest Vodafone, RSA and my personal pick Man Group) are worth owning right now. I'd even suggest using a bit of leverage at these low interest rates.
But you tie your cash up in the bank for a poxy 3.5% if you want to mate.
Steven-L - That rather depends on what oyu mean by inflation. I reckon we've had a load more 'inflation' than admitted since I hold to the view that inflation is the expansion in the money supply and the reduction in the quality of money in excess of any real gains in wealth. Price rises of goods and services are a result of that inflation, not its cause. By that measure I might agree that stocks are cheap, in that their price is being measured by deavlaued money. And as stocks in many ways represent real assets it might be that those assets are being underpriced. Against that the effect of inflation on the future income stream (a stock price reflecting the discounted future cashflow of that income) has the potential to be destructive.
Having said all that I too feel that stocks are a reasonable buy compared to other income producing assets like property, bonds or cash. This also assumes that we will get a vaguely sensible government that has a vague grasp of how wealth creation actually works and let us get on with it. But that is not a given.
The stock market is an irrelevance for economic health except as an indication of confidence.
If it were an indicator of economic health then looking at your chart it suggests that even today - with the current slump - we are three or four times better off than in 1988 (depending on the scale). Does anyone believe that?
Of course not.
The FTSE is a great gambling game and a good indicator of City confidence - but otherwise pointless.
L, I'm not too bothered about income, I'm mainly concerned with avoiding capital losses.
Stan, excellent summary.
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