Is the stock market over heating?

Glastoun

gadgetmind wrote: »

Are you looking on a linear graph or a log one? Are you looking at absolute values or inflation adjusted ones? Both of these can make a *huge* difference.

If you look at "Black Monday" (19th Oct 1987), when many markets crashed over 20% in a single day, does it look significant or just a tiny blip? It was far from being what you'd call tiny so any graph that suggests it was mere noise compared to more recent events isn't telling you what you need to know.

It's a linear scale, don't know if it's inflation adjusted or not:

http://uk.finance.yahoo.com/echarts?s=%5EFTSE#symbol=^ftse;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

Black Monday is fairly clearly a rush from Jan-Sep, and then a reversion to the linear straight afterwards. From 93 onwards the increases are much steeper.

Interestingly, if you continue the trend from the 80s onwards as a straight line, it would come very close to both of the market bottoms in 2003 and 2009.

The S&P 500 is shows almost exactly the same pattern:

http://uk.finance.yahoo.com/echarts?s=%5EGSPC#symbol=^gspc;range=19840102,20130401;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

Happy to be put right about the scales though - I guess a hypothetical 5% increase per year should look like an exponential curve on a linear scale such as these, so maybe the fact that the 80s was totally straight wasn't such a great thing!

talexuser

Why is the max ftse time axis neither linear nor logarithmic, while the s&p is linear?

Glen_Clark

JohnRo wrote: »

Can anyone say whether the great bank robbery taking place has worked or not yet? ...... those pulling the levers behind the scenes will come out the other side much better off, at everyone else's expense, whichever way it goes.

answered your own question there, haven't you

Money printing has reduced the value of the pound and increased asset prices, transferring wealth from the poor (with no assets) to the rich (with assets). So its worked.
Whether Osborne's 'Help To Buy (Votes)' sceme will get him elected remains to be seen. But if it doesn't it will leave a poisoned chalice to his successor. So either way that will work too

Glen_Clark

gadgetmind wrote: »

Yes, totally obvious in the rear view mirror. Let's see how obvious it was at the time,

http://www.businessinsider.com/dow-jones-idiot-maker-rally-2013-3?op=1

That link illustrates my point perfectly. But I don't accept they are idiots - they just didn't have the benefit of inside information - knowing what the politicians were going to do.
The thing they (and I) failed to predict was the scale of money printing.
If we had known about it in advance, as the politicians who did it must have done, as the BoE staff must have done when they switched their pension fund into index linked bonds before cranking up the printing presses. then we could easily have predicted the fall in the value of the pound and the rise in asset prices.

sabretoothtigger

the fall in the value of the pound and the rise in asset prices.

Pound hasnt fallen much vs dollar after its initial fall which means the worst fall is ahead still I reckon.
Dollar itself hasnt fallen as much as it can, so I dont know if its good news for asset prices but value is due to drop still further on many things most likely. Good news for exporters ?

gadgetmind

Glen_Clark wrote: »

the BoE staff must have done when they switched their pension fund into index linked bonds before cranking up the printing presses

Their pension fund is managed by Legal and General, and given the scale of QE, they might have been better sticking to fixed interest gilts for much longer.

Glen_Clark

gadgetmind wrote: »

Their pension fund is managed by Legal and General, and given the scale of QE, they might have been better sticking to fixed interest gilts for much longer.

Not if they wanted to buy their index linked gilts today I think.
But the point is you can predict the future if you control it like the politicians do with money printing and interest rates.
None of those pundits in your link even mentioned money printing which has been the game changer. Without money printing and sustained low interest rates on this unprecidented scale, which they couldn't have known about, I believe they would have been right.

Glen_Clark

talexuser wrote: »

Great link, and you've reminded me of all those growth and debt reduction predictions that the gov'ment made when and after they came in... :eek:

about as much use as their promises to savers.
You have to try and differentiate between what they believe, and what they say to get elected.
You knew where you were with Thatcher. But then Blair got in by pretending to be on everybodies side - usually posing as left wing and bringing in right wing policies. Since it won Blair 3 elections they are all doing that now.

grizzly1911

Glen_Clark wrote: »

You knew where you were with Thatcher.

We certainly did:eek:

pqrdef

JohnRo wrote: »

Calling current UK markets overvalued isn't entirely a fair assessment either, if measured by the 2000 and 2007 inflation adjusted peaks?

Those prices were against the background of what people thought was a strong economy, but that turned out to be an illusion.

In fact there was everything wrong with those levels. There was already too much cheap money around, thanks to Greenspan. Companies were creating money out of nothing by overvaluing their assets, not just property but especially intangibles. And too many businesses were delivering little value for money. Where are the feng shui consultants now?

Half the vans on the bypass seemed to belong to firms that watered the rubber plants of firms that restocked the loo-roll holders of firms that furnished the foyers of firms that watered rubber plants.

And there was a huge boom in financial services, basically just churning.

It was an easy-come easy-go era when it was ludicrously easy to relieve people, especially the affluent, of their not-very-hard-earned money. The house-price boom didn't happen in isolation.

There still seems to be the illusion that things will get back to normal. But 2000 and 2007 weren't normal. In fact the old normal ended when the Chinese set out to decimate Western manufacturing, and we don't know what the new normal is yet.