UK growth or recession - Sunday Times says both!

Reaper

I was amused to see in the Sunday Times today the headline article in both the Money and Business sections contradicting each other.

In the Money section the lead article is "What to buy for a market bounce" and tells investors to prepare for a 3rd quarter bounce. It looks worldwide but includes the UK in their upbeat forecast.

UK companies are trading on less than 10 times earnings - one of the cheapest in the world today.

They go on to quote somebody recommending buying UK banks, housebuilders and retailers.

Meanwhile the headline in the Business section is "Britain starts shrinking again". The article is gloomy throughout saying the economy is shrinking and they quoting a survey saying 43% of buisnesses will find it difficult to survive if current conditions do not change in the next 12 months.

Don't these financial journalists ever talk to each other? Or a least look at the headlines in their own paper?

pqrdef

Weeding out a lot of companies may be good for the ones that are left in the game.

Or it may just be that share prices parted company from the real economy a while ago.

ruperts

How closely are GDP figures and stock prices connected? Isn't it possible for GDP to reduce while the stock market rises? Especially since I would expect that most of the main FTSE players do a lot of their business internationally. Just how much of an impact would a UK-specific recession have on UK stocks?

StevieJ

I thought Ftse 100 companies had around 70% non UK sales so UK GDP is not the main driver.

sabretoothtigger

Both is possible but even in the uk if we have 5% growth with 10% inflation then thats recession by another name. It just sounds better but people will be poorer


Here is something similar to that I read

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8626790/House-prices-inflation-wipes-thousands-off-property-values.html

According to analysis from LSL Property Services, house prices have increased by just 11pc between 2006 and 2011, which means that the actual worth of the average home has gone down.
This is because inflation has increased by 17pc in the same period, while salary growth is up 15pc.

The other factor is people are not sole or even majority owners of the home. If the bank owns 80% of the house that confuses it slightly.
Even the bank themselves can say well we borrowed that money anyway, so long as they make a profit on the difference between their loan and what they charge the customer then everyones happy?

The policy is deliberate, alot of these loans would default if it werent for inflation.

Thats why when people say well gold could crash. Its not likely, are they going to reverse this fake growth

Reaper

StevieJ wrote: »

I thought Ftse 100 companies had around 70% non UK sales so UK GDP is not the main driver.

True but as 2 of the 3 recommended sectors were housebuilding (they suggested Taylor Wimpey) and retail (they suggested Home Retail - owners of Argos and Homebase) they would be heavily influenced by the UK economy.

pqrdef

sabretoothtigger wrote: »

Both is possible but even in the uk if we have 5% growth with 10% inflation then thats recession by another name.

The quarterly/annual GDP growth percentages are inflation-adjusted.

jimjames

Reaper wrote: »

Meanwhile the headline in the Business section is "Britain starts shrinking again". The article is gloomy throughout saying the economy is shrinking and they quoting a survey saying 43% of buisnesses will find it difficult to survive if current conditions do not change in the next 12 months.

Don't these financial journalists ever talk to each other? Or a least look at the headlines in their own paper?

Britain shrinking will not affect the FTSE 100 as it is now uncorrelated to the health of the UK economy due to the number of overseas companies now listed here. If 70% of their earnings come from outside the UK then the impact of downturn in the UK on them is limited.

psychic_teabag

I thought I'd read that the market and the economy cycles were out of phase, with the market leading the economy. Or something like that. So the market is based on where the economy will be, not where it is now.

http://www.sectortimingreport.com/sector-rotation-chart.html

But I'm rather new to all this...

sabretoothtigger

The market estimates the growth of company profits vs the cost of money over the next 6 months to 2 years. If rates were high then people will not bother owning a company as much.

The quarterly/annual GDP growth percentages are inflation-adjusted.

I did not know that so it seems far more possible to go negative. Depends how accurate they measure inflation or gdp, in USA they use core inflation which I think excludes price of petrol which is a strange measure then

dtsazza

sabretoothtigger wrote: »

The quarterly/annual GDP growth percentages are inflation-adjusted.

I did not know that so it seems far more possible to go negative. Depends how accurate they measure inflation or gdp, in USA they use core inflation which I think excludes price of petrol which is a strange measure then

GDP doesn't actually use RPI or CPI, it uses a particular measure of inflation known as the "GDP deflator". In brief, this works out what the GDP would be this year if the price of everything had stayed the same - which you can then divide the "nominal GDP" into to work out the percentage rise in prices.

This makes a lot of sense, since GDP is intended to measure output rather than how much money the economy is making - and as such, while you can challenge whether RPI or CPI is an accurate measure of inflation, the GDP deflator is "correct" by definition. So if GDP goes up by 10% then that should mean we're producing 10% more stuff as a country. (Though there are many challenges with accurately measuring this in practice!)