Footsy Situation

A_Flock_Of_Sheep

The FTSE 100 seems to be at an all time high and is still climbing. Are we in the midst of a massive bubble soon to burst or is this trend set to continue for some time to come?

I know this isn't predictable but just a thought for discussion. :j

WGPA

As long as interest rates stay so low I can't see it dropping hugely. I imagine many would e looking to invest for better returns this facing the market and increasing prices.

Just an initial thought on it, I didn't think too deeply before responding!

dryhat

The stock market has become totally detached from reality.

The only reason the ftse is rising is because banks are able to gamble with money that they have borowed at near zero %

To compare the stock market to a casino is an insult to casinos.

Tammer

Hi,

Remember that it's not actually all that near it's high.

It was over 6,900 in 2000, 13 years ago.

T.

Linton

A_Flock_Of_Sheep wrote: »

The FTSE 100 seems to be at an all time high and is still climbing. Are we in the midst of a massive bubble soon to burst or is this trend set to continue for some time to come?

I know this isn't predictable but just a thought for discussion. :j

Err the FTSE100 isnt at an all time high. It reached 6930 in early 2000 which is some 10% above current values. But we have had some 40% inflation since then so the difference is that much greater.

dealer_wins

Sell at 11000 (in June 2017)

bowlhead99

A_Flock_Of_Sheep wrote: »

The FTSE 100 seems to be at an all time high and is still climbing. Are we in the midst of a massive bubble soon to burst or is this trend set to continue for some time to come?

Well, it's no higher than it was last month and is lower than it was in the middle of March. It is indeed, broadly, at an all time high (especially if you use the 'total return' version of the index which considers it has paid out a load of dividends since the '99 and 2007 peaks).

However, we know that in the long term, equities beat cash and bonds and other stuff because the only way to fully participate in a growing economy over decades and decades is to own a share of the profits in all the businesses within it. It is now cheaper and more efficient to produce high quality 'stuff' because technology makes things easier and as the smaller less developed economies grow they create more paying customers for their own economies and our own. So whether you are in the 'getting stuff out of the ground' or the 'inventing stuff' or the 'making and selling stuff' or the 'providing services' businesses, there is wealth being made hand over fist. So an index of the largest multinational companies in the world would expect to do well over time.

If shares went up in a straight line, every single day would be a new all time high. Describing it as a 'bubble' when it goes up for a couple of consecutive years is probably an exaggeration. If you own a company or a share of it, you own its future profits, and if you look at the average value of a FTSE company against the average annual profits it makes, the multiples are not outrageous or at all time highs.

Having said this, the prospects for some western economies, including our own, over the next few years are not exactly stellar. When this was realised, and the crazy free credit everywhere dried up, everything crashed - but now it has rebounded significantly, while true economic growth seems like it is a way off still. It is arguable that you should not pay the same multiple of current year profits to buy a company as you would if the growth prospects for those companies were higher, and therefore if FTSE is at 6000+ with flatlined UK, US and Europe economic growth, perhaps people are being over-optimistic.

Of course at the moment, debt is very cheap with interest rates at all time lows. This is good for companies who want to use debt to expand, or want to sell products to people who are saving money on their mortgages or are in a position to access cheap loans. It also means the returns on debt investments are low so there is an inherent demand for riskier equity investments which have the chance of delivering a real (inflation beating) return. Consequently the FTSE is up at relatively high levels compared to early 2009 when there was no credit and people were very worried how permanently screwed the global economy might be.

One would assume the cheap debt will not be sustained indefinitely and neither will the 'sigh of relief, lets get our risk appetite back' rally be. But really whether FTSE sees 7500 or 5500 next is an unknown because it depends how well the world scrapes through the various current crises and problems around Europe and the rest of the world, and a whole load of crises and problems we don't even know about yet.

There are people on here who would say it is going down next. Others say the opposite. Some say it is overdue another plunge but after that buying opportunity it will come back stronger than we have ever seen it.

The average price of the stocks reflects sentiment and what someone will pay now to own the business for its value tomorrow. Clearly if everyone thought it was going to 5000 it would already be there, and likewise for 8000. The range of opposing views is what creates the current price, somewhere in the middle. While you might find vocal people with passionate views either way, you äre entirely right with your opening comment:

I know this isn't predictable

So, end of discussion? :beer:

dryhat

The current "stock market" situation is this...

A bunch of liars and thieves decide where they want the price of a particular stock/commodity to be, then go to lunch and let their computers trade all day until that price is reached.

Bonuses all round and screw the real economy.

jimjames

dryhat wrote: »

The current "stock market" situation is this...

A bunch of liars and thieves decide where they want the price of a particular stock/commodity to be, then go to lunch and let their computers trade all day until that price is reached.

Bonuses all round and screw the rest of the economy.

You seem very bitter about something.

Much of the rise in the stock market is justified by the increased profitability of companies in it, few of which are banks. I have seen mention of this being the start of a multi year bull run and I think that is a distinct possibility as the economy starts to recover.

But overall I don't buy the bubble story at current levels in the UK or indeed many other markets.

dryhat

jimjames wrote: »

Much of the rise in the stock market is justified by the increased profitability of companies in it..........

Of course it is.

Sorry, my mistake.

grey_gym_sock

it's true that very little of what goes on in the stock market now is to do with its supposed function of providing capital to businesses.

high-frequency trading doesn't contribute to that function, and it's a large and growing part of stock market activity.

there are also ppl trying to manipulate prices for gain.

all this short-term activity can make prices more volatile. and about equally likely to under- or over-shoot. but then markets always do that; it's just a difference of degree.

stocks markets are never pretty. though there may be possible rules changes that would curb some of the worse aspects. any suggestions?