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Ftse To Hit 6,000 Year End


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16th Sequential Equity Fund Outflow Takes Total To Over $50 Billion YTD; Retail Boycott Of Stocks Continues

The latest anticipated weekly outflow from equity mutual funds just hit a one month high of $2.7 billion, as reported by ICI, and with that, YTD redemptions by equity investors have hit over $50 billion. Domestic equity mutual funds have not seen a net positive retail inflow since April 28, yet despite this the market has been substantially rangebound and until last week. What is notable is that even during times of relative stock outperformance, courtesy of whoever it is that is left buying stocks, be it HFT algos, or Primary Dealers pumped with cheap Fed liquidity (and don't forget today is another "free $2 billion courtesy of POMO" day), the investing public refuses to be drawn into owning stocks. CNBC has now failed to sucker its viewers into the stock ponzi for 16 weeks in a row and rising. The clear capital rotation winner- the bond bubble, but that is the topic for another week.

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This thinking is typical of the sheeple investment crowd. Yes don't go near an asset that hasn't performed for a decade and whose P/E are now 1/4 of what the were in 2000.

Much rather invest in an asset class like bonds that have been on a bull run since 1981 and who's yields are now 1/6 of what they were at the start of the bull run.

Most people on here have no idea about SECULAR trends.

The very fact that inflows into equity markets are at a decade low and that inflows into bond funds is at a record high should sound alarm bells to the fixed income lovers.

Current bond inflows are now reminisent of the levels of investment in equities in the late 90s, just prior to the tech bubble bursting. Likewise current equity inflows are quite the opposite. No one currently wants to own equities.

Bonds are in the euphoria stage of the cycle. Equities the hated stage. Every asset class eventually has its day and likewise rises again. The time to buy is when pessimism takes over that asset not during the euphoric stage. Unfortunately the sheeple in society and on here cannot understand this.

Buying fixed income funds is like buying a uk property now, i.e. right at the peak of its bubble. The only difference is that the bond bubble has been ongoing for 29 years.

We are now in the blow out stage for the bond market.

The fact that joe public posters on here talk of the stock market as being a failed, crooked capitalistic and outdated model fill me with joy. Stocks are hated. There is talk of them never coming back. This is exactly the sort of asset classI want to invest in.

Follow the crowd and sheep to the bond market. I would rather invest in an asset that is universally hated and now representing good value in certain sectors (i.e. the defensive high yielders).

Edited by ringledman
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This thinking is typical of the sheeple investment crowd. Yes don't go near an asset that hasn't performed for a decade and whose P/E are now 1/4 of what the were in 2000.

I agree with much of what you wrote I just personally believe your timing is out by 5-10years.

I think we have a while to go before equities are hated. If you read any of the Sunday papers money section they still talk about buying the dips.

When we have 20 years of Japanese style peaks and troughs I think we will be getting closer to the bottom of the 2000 peak in equities.

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I agree with much of what you wrote I just personally believe your timing is out by 5-10years.

I think we have a while to go before equities are hated. If you read any of the Sunday papers money section they still talk about buying the dips.

When we have 20 years of Japanese style peaks and troughs I think we will be getting closer to the bottom of the 2000 peak in equities.

Quite possibly my timing is out by 5 years as secular bear markets in equities last around 15-18 years or so.

Nonethless, equity markets during bear periods tend to grind sideways rather than crash as P/E get to the 5-8 times levels. Japan 1990s was the exception but their boom was beyond epic proportions with P/Es at around the 50-100 times levels.

The tech bubble had P/Es around this level for tech stocks but other defensives were closer to the 25 mark. There has been a decade of regression and rising earnings to bring these P/Es down.

Stocks bottom at around 5-8 times earnings. The crash of 2008-09 wasn't far off. Likewise after a near on 50% crash in 08, emperically to have a similar crash a few years later is virtually unheard of.

Glaxo, Vodafone, National Grid, etc are around the 7-10 times level and yielding 5-8%. Solid blue chips that have done little over a decade. I would much rather leave my cash here for the next decade than join the overcrowded bond bubble.

Within the FTSE100 there is some trash mind IMO. The banks, retailers, travel, etc. I.e. the cyclicals.

So IMO the downside risk for defensive, high yielders is more limited than in the past. With 6-8% returns over the next decade any capital fall may be covered in part. Likewise the previous ten year grind has helped reduce the downside risk.

Granted th euphoria stage can go on for much longer than people think, but bonds have had such a run that the burst is innevitable sometime in the next 5 years at max.

Edited by ringledman
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Personally I don't care. Whatever the FTSE is at, it has little relation to how the economy effects ordinary people.

It's just another part of the b*****er shell game.

+1 if it wasn't for the effect a stock market crash would have on my pension kitty.

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"The problem with socialism is that eventually you run out of other people's money [to spend]"

Margaret Thatcher

"The problem with banking is that eventually you run out of other people's money to lend"

Dave Spart

:lol:

The problem with all politicians is that they blow other peoples cash on things that they definitely don't need and in most cases don't want.

Even the things that they do want are often only wanted because an almighty con tricking, bullshitting PR machine has fooled them.

The Iraq war springs to mind amongst countless others.

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  • 3 months later...

That's how you call the market.

When Joe Public is talking of Hindenburg Omens and Head and Should Tops then the bull run will continue.

Once Joe Public starts loving stocks then it will be time to get out.

Stocks and commodities to continue the rise through 2011.

3rd Year Presidential Year emerically fantastic for the markets...

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For a second there I thought the FTSE had just hit 6,000 whilst I was looking away from the screen! :D

LOL. Maybe bit premature but 3% in 4 weeks, more than possible.

Stocks and commodities are going to soar over the next year.

3rd Year of Presidential term has produced fantastic results year after year for the markets.

Negative Interest rates will continue for the rest of 2011 and beyond.

Double dip out the window.

History never shows a huge fall 1-2 years after a 50% fall.

QE3, QE4, QE5 on the cards. Liquidity overload.

Eventually the markets will suffer but not until stocks are loved again. Some way off...

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LOL. Maybe bit premature but 3% in 4 weeks, more than possible.

Stocks and commodities are going to soar over the next year.

3rd Year of Presidential term has produced fantastic results year after year for the markets.

Negative Interest rates will continue for the rest of 2011 and beyond.

Double dip out the window.

History never shows a huge fall 1-2 years after a 50% fall.

QE3, QE4, QE5 on the cards. Liquidity overload.

Eventually the markets will suffer but not until stocks are loved again. Some way off...

Cherrypicker. Incidentally this same thread title has been on Yahoo Finance Boards for as long as I can remember this year.

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The FTSE100 is weighted hevaily towards miners/oil & gas companies, whose shareprices are linked directly to earnings that are based on revenues from commodity sales. Weakness in the £ is generally positive for the FTSE.

Printy printy = higher commodity prices, weaker ££ = higher FTSE.

6,000 by year end looking likely IMO.

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Sentiment and valuations, though based on near record profits in the US, justify your optimism. I don't give any credence to the 3rd year of a prez term anymore not with the levels of the deficit (and debt) in the US.

Have any thoughts on corporate bonds? They have come off quite sharply the last month or so and the ishares £ bond fund is now yielding nearly 6%.

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Sentiment and valuations, though based on near record profits in the US, justify your optimism. I don't give any credence to the 3rd year of a prez term anymore not with the levels of the deficit (and debt) in the US.

Have any thoughts on corporate bonds? They have come off quite sharply the last month or so and the ishares £ bond fund is now yielding nearly 6%.

i thought we were in crazy bond bubble , or is that just EM debt?

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Far too many bulls about. This market will correct before the next leg up. The market may have a percent or two left, but the risk is overwhelming to the downside. Let's revisit this thread in 2 months' time.

http://www.investorsintelligence.com/x/charts/sentimentChart?_period=3y&stype=diff&sp500=y&w=600&h=400

(look for the update some time tonight)

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to be honest i would not be surprised to see the FTSE over 5700

investors will want to put their money somewhere, and they will not be putting it in houses anymore, so a good HPC will will make a good FTSE, but then again what do i know.

Well said. The tinfoil hatters wont like your views though. "Everything will collapse!" Nope, just houses

:)

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i thought we were in crazy bond bubble , or is that just EM debt?

The crazy bond bubble is in sovereign debt. Wasn't scepticus always going on about how much cash the global companies have on their balance sheets?

That said, that ETF has a big chunk of its portfolio in bank debt. There is another ex-financial ETF that has a yield around 5% rather than 6%.

Anyone care to calculate the margin of safety on the FTSE with these rates? A dividend yield of 3% looks pretty good compared to a bond yield of 5%. We would have to see negative earnings growth and very low inflation for the bonds to outperform.

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cheers,

interestingly, from the FT, 5th Dec:

Consider the recent behaviour of Warren Buffett’s company Berkshire Hathaway. There is no suggestion here that Mr Buffett is infallible. Rather, he exemplifies the belief that individual stocks should be bought on their fundamental value, regardless of what the market is doing.

In the first nine months of this year, Berkshire’s cash flow statement shows it was a net seller of equities to the tune of about $600m (£380m). This was a mere 1 per cent shift in its total portfolio. What concerns us, though, is the direction.

The last time Berkshire was a net seller was in 2004 – wrongly, one might think, since the US market then rose almost 40 per cent until its 2007 peak. But then, Mr Buffett has always argued that market timing is impossible.

More to the point is his behaviour in the run-up to 2000 – much the highest peak of overvaluation in the US equity market’s history. He was a net seller from 1996 onwards, thereby missing both the boom and the bust.

Given that Berkshire has $31bn in cash – on which returns are negligible – Mr Buffett’s actions, as opposed to his public statements, suggest he thinks equities are not worth buying right now. Why might that be?

Several thoughts come to mind. First, the so-called Shiller PE on the broad US market – a long-run measure of price versus real earnings – is well above its historic average. And yet US profit margins, according to Smithers & Co., are at an 80-year high.

Experience suggests that margins are a lot more likely to fall than rise from here. So to justify that earnings multiple, growth has to be pretty impressive.

This is where the doubts creep in. Morgan Stanley poses a pertinent question: will global growth next year be enough to paper over the cracks of global imbalances, or will lack of growth increase the risk of disorder in the world financial system? The bank puts its money on the former, but in reality there is no saying.

In broader terms, consider four possible causes of the next recession, as set out by Smithers & Co. First is Chinese inflation, then rising inflation expectations in the US, then falling US profits, and lastly sovereign defaults in the eurozone.

Some might put those in a different order, but all are real enough. The threat of Chinese inflation to China’s growth – and thus world growth – is obvious. So is the risk that the Fed will succeed in its stated goal of raising US inflation, but by too wide a margin.

As for US profits, the main issue once more is that of margins. And if anyone doubts that equity markets take the eurozone threat seriously, consider the fact that the FTSE 100 jumped more than 2 per cent last Thursday on news that the European Central Bank was still buying eurozone bonds – and the UK is not even in the euro.

All that said, back to our opening question. If the equity market is dysfunctional, it is because it sits in the centre of a decade-long crisis in the financial system which has yet to run its course.

No doubt, the market will regain its poise eventually. One final question, though.

Suppose, before then, a bubble were to burst in bonds. Would that make the equity markets more functional or less? Let us hope we do not find out.

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6,000 looks reasonable. This Bull market should see the FTSE eventually go all the way to 10,000. The UK is not going to have QE2. The recession ended a long time ago. We are now in the second year of a classic v-shaped jobless recovery. Whilst the outlook for property, gold and bonds is not good, equities should be fine. We have mild inflation and good economic growth. This is not Japan - asset prices didn't get inflated anywhere close to those levels. This is not the Weimar Republic - the BOE has printed money to buy bonds, not to fund government expenditure. When this process is reversed over the coming year or two, the BOE will sell its bonds and set fire to the proceeds and raise rates. Inflation will not even reach double digits. This is not 1930s USA - property has been bought with debt, not equities. There are no margin calls to immediately cover. The bankruptcies will occur in a more "orderly" fashion as rates rise.

Although I prefer overseas equities to those in the UK, most bourses are trading around their long term averages on a forward p/e basis. I expect the next bubble (after the one in gold has popped) to be in Emerging Market Equities. Japanese equities are also a good buy - but long term, you can't go too far wrong at the moment. Even in the US, companies are growing earnings at a brisk pace. Expect a wavy path all the way to DOW 20,000.

I'll be selling into the rally over the next five years to buy...yes you've guessed it...UK property. From 2012-15, there will be bargains everywhere. We are already back to 2004 real prices and not even close to done.

Excellent analysis. Agree with a lot of that. You have to laugh at the posters who compare our stock market or economy to Japan in 1990 without a clue as to the wild differences in fundamentals. Polar extremes is a better analysis.

Japanese equities are now probably the cheapest asset class on the planet and NO ONE is interested. Awesome...

Edited by ringledman
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