so now that the housing bubble is deflating where is all the (liquidity) money going?

as others believe that the DOW will hit 15000 this year before retracting will we see a FTSE summer bounce?

don't you just love contrarian investing

inflation high, housing dropping, possible recession ahead, FTSE going north?

edit - typo

ITs commodities stupid.

Inflation = Higher prices = Bigger profits for raw materials producers.

Plus, BAs profits come as a bit of surprise even to me, I think people are buying back all those airline shares they shorted after last weeks Easyjet figures came out...

maybe they see a repeat of the 90s where the SM actually did quite well.

I don't see it, but I am not someone to rely on I can't call the SM, in fact am a bit of a reverse barometer.

Moneyweek reckons it is a dead cat going boing!

agree in part with the commodities part

but with banking stocks having been hit now over the last year, I suspect there will be many waiting on the sidelines to get their money back into the bank shares

a big risky play of course, but with BoE not divulging who is going to them for handouts, a get out of jail card has been issued temporarily

15000 may be slipping away. I am not convinced of this shares rally. Today is options expiration. I think this evening, in the US, or Monday there could be the start of a sharp sell off. As ever $:¥ is the key. As ¥ number moves so does S&P. ¥ wants to head higher (ie lower number).

Isn't it Memorial Day on Monday in the US - Markets closed?

If you want to outsmart stock market, you are nowhere near the first one to experience type of reaction. Efficient markets don't look into rear mirrors, and the amount of information, microflows etc that determine stock price is beyond our comprehension. Don't underestimate the amount of private information (as opposed to public) that goes into pricing of stocks. Last but not the least: don't forget that as a shareholder you are entitled to the cost of capital, and it will be on average a lot higher over time than what you get on gilts or bank deposits. This is not to say that stock markets never fall, but you should keep in mind that being short stocks means being in a lot of negative carry. Fundamentally changes in stock prices boil down to 2 inputs: future cash flows and the cost of capital required by shareholders. You may make loads of money being short, but it's quite a task to tell at any point in time that 6 or 7bn of people have grossly underestimated the cost of capital and/or future cash flows of a particular entitity.

I've given up trying to fathom out how the prices work. It seems to defy all logic. The commodities boom explains some part of it, however any sort of economic downturn does not appear to have been priced in, so at some point they have to drop off a cliff.

We are told much of the FTSE bounce is due to commodities but if the global economy slows then surely commodities will tank and hence the FTSE will too?

Yep. You could even argue it's a self perpetuating circle, as commodity prices rise, less are eventually demanded and the price has to come down. The hardest part is picking when or at what level or what event is large enough to start the fall. I put a chunk of my ISA back into the FTSE a few weeks ago, but I'm very nervous about it being there.

Been wondering myself why the stock markets seem unhinged from reality. Could it be that the sheeple have realised that REAL inflation (not the fake official version) is eroding their savings so maybe part of the reason for stock markets going up is people transferring their cash from bank accounts earning below-inflation interest to stocks and shares? Anybody got any historical figures on volumes traded?

Er, exactly! As $ rises, commodities will be repriced DOWN, in the short term.

Exactly. The volumes are not quite anaemic up here but not nearly enough to push through.

As an aside, does anyone know of a way that I can sell my 10K shares ISA and somehow keep the ISA wrapper? I would be aiming to get out of shares till the Autumn at the earliest but all the places that keep the ISA wrapper pay something rubbish like 1% interest.

You ask where the liquidity will go?

But the fundamental feature of a "credit crunch" is loss of liquidity.

So while FTSE seems to enjoy defying logic, I wouldn't bet on gains at this point. Far from it in fact as people may even have to liquidate some holdings to pay rising interest charges, bills etc.

What I do is transfer from one fund to another within the ISA, using the same provider. This keeps it still in the ISA wrapper, you're not usually charged for this either. I used to transfer between a Gilts ISA and FTSE tracker, whenever I thought the FTSE had peaked transfer it into the gilts, wait for the ftse to drop then pile back in, but currently (I think)Gilts are overpriced. Your ISA provider will have a number of other funds, however none are really guaranteed to keep your gains safe, but some are less risky than others (with a lower return as well).

Bear market rally, albeit an impressive one.

If you know your stock market history you will know that the stockmarket has historically NEVER crashed significantly between Nov-April, and all siginficant falls happen between May-Oct.

i.e. I expect it to fall away significantly over the next 6 months as the seasonal window opens.

All ISAs can go to cash. If yours doesn't then transfer to another provider and remain in cash. Transact-online.co.uk holds cash on Money Market (5.5% ish).

Serious, simple, practical question. How long can the cash be held without violating the terms of a Maxi ISA?

I asked about this years ago - and every single provider was unhelpful - saying "Not long" and "while you decide what next to invest in" - none would suggest a safe time limit.

There is no laid-down time period. So every provider takes a view.

Thanks FP.

What's the old saying:

Sell in May and don't come back till St. Ledger's day.

Personally I am shorting the FTSE and don't think it will never fall below 6000 again.
Regardless of how long this rally lasts I expect so be buying back the FTSE at sub-5500 levels in a few weeks.

Also,

I'd say that the good performance of BT and some other companies has helped things.
But the real power behind the FTSE is the recovery of banks and commodities.
looks at how Shell and BP have performed recently - they are dragging the FTSE up.

Kinda funny though - high oil prices -> high Shell prices -> High FTSE -> "Strong economy blah blah blah"
It's a but like biting off your nose to spite your face.

Is there anything in any ISA that is safe, and allowable in the long term? by safe I mean the capital will not fall in value.

Great posts FP, thanks for your wisdom. I also think commodities are due for a fall as the economic data starts to line up in favour of recession (Merv has done this for the UK, effectively, this week). But the key for em is that folk like Bush are finding commodity price highs are becoming a big political issue. They will bring them down come what may now, and then it will be fireworks for a while and some huge long term buying opps.

If you think commodities will fall, look for all the ETF short funds you can put in your ISA/SIPP. I did well out of shorting wheat, but I had a lot of luck in my timing more than anything.

At what level should the FTSE drop to before it will be a good time to pile in? I was thinking if it dropped to bellow 5600 I would transfer my entire cash isa of 15000 pounds into it.

I thought it was possible to transfer all cash ISA to shares but not the other way around.

You are 100% right, apart from

Mar 16, 1938 - Britain's top index falls by 5.4 percent in
the wake of fears of war and rising taxes.

Dec 6, 1973 - Britain's top index registers 5.5 percent fall
as oil shock affects global markets with rising prices.

Mar 1, 1974 - Markets react adversely to Labour election
win, registering a deep fall at 7.3 percent.

Jan 2, 1975 - Shares fall by 6.4 percent as markets become
volatile when Burmah Oil lost its tankers following the tripling
of world oil prices.

Mar 11, 1975 - Burmah Oil crisis triggers a fall of 6.1
percent again.

Jan 21, 2008 - The FTSE 100 falls 5.5 percent, suffering its
largest one-day loss since September 2001 as the index tracked
global markets lower on deepening fears of a possible U.S.
recession.

I would suggest that it is so hard that, on average, it is impossible, so there is no point in trying

It's a gamble, in every sense of the word. As I said, I'm nervous about trying to ride this one. The sunday papers' money sections are full of stories about how commodities are rising and people are pouring money into them, if that's not a shoeshine-boy signal then I don't know what is. At least I'm not leveraged and it's only my pension I'm risking.

http://uk.biz.yahoo.com/080516/214/hzphf.html

Friday May 16, 05:01 PM
London close: Footsie hits 4-month high


LONDON (ShareCast) - A sharp drop on Wall Street carved a chunk out of London's gains late Friday, but the leading index stayed above 6,300 thanks to hefty rises at British Energy (LSE: BGY.L- news) and LSE on bid excitement.

A couple of weeks of bearish economical news and stocks fly. Must be all that doom mongering from the BoE and EAs in trouble along with catastrophic oil rises, inflation, threatened public sector strike action, U-turns from NuLabour, budget deficits, record repossessions, hang on...............


It is probably more to do with overly optimistic views 6 months out and the fact that the HPC will take a while, not long mind you, to impact the broader economy. Keep your fingers near the sell button folks I doubt its going to last given the dire fundamentals Merv has been going on about.

Look, you invest long term to beat the BSoc. You HAVE to accept some downside potential if you are going to get above cash returns.

Yes, cash.

But I wish people would realise that it's not just stocks v cash. There are a baker's dozen of asset classes to invest in.

But surely in the current climate cash is going to prove safer than stocks. If the economy turns down, if house prices crash, if everything goes tits up as this site expects then cash will be better than having your money in a falling if not crashing stockmarket?

The other catch, is that if you hold cash in an investment ISA, then the interest is taxable at basic rate. So, not only is the interest rate particularly feeble (e.g. at 1%), but you lose 20% to tax as well.

Cash is always a 'safe' investment, but it has poor returns, and importantly, it's value may fall during periods of inflation.

Not all investments are equities (shares) and therefore may have performance that differs from the broader stockmarket. Similarly, you are not constrained to a single country, or even continent - there are a myriad different regions, and strategies to invest in. An important thing about many investments (both equities and commodities) is that their value is inherently linked to inflation, because they are tangible assets, not fiat promises. As such, many investors are keen to hold equities when inflation beckons. Of course, there are a multitude of other factors that determine their value, which is why there is inherent risk in such investments.

Don't forget that you can hold gilts, or government bonds from other countries (or an investment fund composed of a mix of these) in an ISA. There are index linked varieties of these gilts/bonds too. If you can't hold cold hard cash, then government bonds are the next best thing. Don't expect the tasty 7% rates you get from high street banks that are desperate for cash, and be aware that the capital value of gilts can fluctuate, depending on base rate, inflation fears, the price of 'security', etc. Right now, institutional investors are prepared to pay a premium for security, and they have pushed the price of gilts up - as a result, their returns are disappointing, and if the price of 'fear' falls, then you may not get back the price you paid.

UK oil prospecting operations starting up again.

Black gold!

Coal mines re-opening aswell!

Does anyone know if there is a limit on the value of overseas assets in an individual's ISAs? I'm sure I read something about it once but can't find anything right now.

TD Waterhouse told me once that I could not hold the US GLD and SLV ETFs in my ISA. But that's because they have a track record of being idiots. They no longer have my ISA.

I guess I could have worded the question better. What I meant to say was, if you have a stocks and shares ISA, and don't want to lose the tax free status, but you currently are nervous of the climate and don't want to lose any previous gains. Is there any fund that almost certainly guarantees not to lose capital value, that isn't the short term cash holding.

The only other way I can think is to put it in a FTSE tracker, and hedge that using a spreadbetting short.

Indeed.

Hate your suggestion.

Try Barmac Castleton.

Thank you

Try the Gatmore Safety First fund. It bottoms out at a 10% loss and has a lot of the upside of the FTSE 100. Over the past 10 years it has actually almost beat the FTSE, which is a lot better than most 'protected' funds