Investment Predictions Tristan on 15 Nov 2009 03:12 pm
I read an interesting article in yesterdays paper (not sure which one, think it was the Gaurdian) about a London based financial advisor that specifically helps his clients to maximise their investment returns solely by holding and trading gilts.
He is a very cautious investor/advisor and stated in his bio that he hasn’t been invested in the stock market since 1986, when at which point he was invested in the Nikkei at around 40,000, and got out at the right time. Currently as I write this, the Nikkei is at 9770.31, and this is 23 years later?
He states in the article that although there are big gains to be made in the stock market, there have also been big losses during the 23 years in which he has not been “in the market” and firmly believes that it is too risky right now to be piling money into the market.
However, I’m sure some people will have noticed that the FTSE 100 has risen from a low of around 3000 at the bottom of this current trough to a rather more healthy 5296 today. But what has driven this recovery?
According to this investor, the same problems that caused the credit crunch, i.e. abundance of cheap credit are causing the rapid recovery we are seeing now, except the difference being that the cheap credit prior to the credit crunch was being pumped into the housing market, whereas now it is being pumped into the stock market, thanks largely to the central government bailouts that we have seen across the major developed economies.
I’m fairly certain that this is not individuals who are pumping in lots of money into the stock markets, more likely it will be the banks speculating with the money they have received in handouts from the govt. Though I’m sure some of this investment in the stock market will be driven by canny investors looking to take advantage of depressed asset prices, using either their own capital or capital they may be able to borrow. Lest we forget that not everyone struggles to borrow money at times like these, just those that need to borrow…those that don’t have a need to borrow will find that there is plenty of credit available to them, rather ironically.
The feeling I got from reading this article is that the recession is not over, far from it in fact, and that we as a society are not learning from our mistakes. Any growth in the stock market in the next few months will largely because of demand driven by credit, rather than because the fundamentals of the stocks being purchased are improving vastly.