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British Equities Are Overvalued By 48%

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Is anyone here predicting a stock market crash?

What are people's predictions of the Stock Market?

Edited by Jason

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Is anyone here predicting a stock market crash?

What are people's predictions of the Stock Market?

Downside reversal - Dead Ahead

http://www.financialsense.com/editorials/b.../2005/0913.html

(This guy is good, see also his comments on gold shares last week, just before the big rise http://www.financialsense.com/editorials/b.../2005/0909.html )

University of Michigan Sentiment Index Gives a Stock Market Crash Warning

http://www.safehaven.com/article-3799.htm

3799_a.png

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I don't think the FTSE crashed during the 1992 house price crash, in fact i think it grew since it had already crashed in 1987.

This time round could be the same. The stock market crashed in 2001-02, therefore HPC 2006 should leave the FTSE ok, :unsure:

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I'm pretty sure that the FTSE/DOW are a bit overvalued....I'm not sure I agree with 40 odd percent.

I could quite easily see a correction of 10 to 15% if it can be shown that demand for oil is declining(due to western consumers slowing)....that would in fact help out the asian markets a bit and I would expect to see some institutional funds switching to asia in a big way,and out of US/UK.

so my money is on japan for some pretty swift upticks in the nikkei and the exchange rate.

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I'm pretty sure that the FTSE/DOW are a bit overvalued....I'm not sure I agree with 40 odd percent.

Just remember that both BP and Shell are in the FTSE100, and between them make up about 20% of its value. Thus as oil increases so will their shares and hence the FTSE. If oil falls the FTSE will also drop.

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Downside reversal - Dead Ahead

http://www.financialsense.com/editorials/b.../2005/0913.html

(This guy is good, see also his comments on gold shares last week, just before the big rise http://www.financialsense.com/editorials/b.../2005/0909.html )

University of Michigan Sentiment Index Gives a Stock Market Crash Warning

http://www.safehaven.com/article-3799.htm

3799_a.png

Thanks so much for posting this cgnao.

I'd urge anyone interested to follow the link provided as its author takes a very fair and balanced view of this measure. As with so many indicators one has to be aware that close correlation i sonly useful when it leads.

Further to this the US / UK have discorrelated recently because the chief driver has been oil. Nudge oil up and the US hates it. The UK on the other hand loves it (as long as it' saccompanied by not too much dollar weakness). In this regard I suppose that any decline in the UK would be most severe if not related to oil. However, with harsh winters predicted, it seem sunlikely oil will lose its market prominence.

Meanwhile the s&p 500 put/call ratio looks like it could resume its spring back up from the lows. Such action is usually accompanied by falls in the index itself.

See chart here.

Recent lows in put/call open interest here have failed to pull the ftse lower, although they have produced an area of congestion coincident with an area of the same three years back.

As fo rvaluation, the gilt earning yield ratio would suggest equities are good value wrt gilts. PEs aren't high and companies are cash rich and increasing dividends. Then again valuations show little correlation with market direction...

Edited by Sledgehead

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3799_a.png

To claim that the chart "predicted" the crash in September 2001 is ridiculous - it's like saying the consumer sentiment index "predicted" that planes would fly into the two most potent symbols of Wall St.

In any case, the consumer sentiment index appears to be mostly a trailing, rather than a leading, indicator in the chart as shown - in other words, the market impacts the consumer sentiment index, rather than the reverse. Look where the DJIA upticks and downticks start in time, compared to the MCSI.

The historically high P/E ratio from the article in the first post would have me more concerned, although one would think that an "economic consultancy" predicting doom could get more recent earnings information than Dec 2004. Do your pommy companies not release quarterly earnings statements?

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To claim that the chart "predicted" the crash in September 2001 is ridiculous - it's like saying the consumer sentiment index "predicted" that planes would fly into the two most potent symbols of Wall St.

Sort of like this:

Texas Sharpshooter Fallacy

Type: Non Causa Pro Causa

Etymology:

The Texas sharpshooter is a fabled marksman who fires his gun randomly at the side of a barn, then paints a bullseye around the spot where the most bullet holes cluster. The story of this Texas shooter seems to have given its name to a fallacy first described in the field of epidemiology, which studies the way in which cases of disease cluster in a population.

http://www.fallacyfiles.org/texsharp.html

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As I understand it on a PE basis the UK market is trading on about 16, much more reasonable than a few years ago, But, it should be noted that just before the 192os crash the market had declined and stabilised from it's peak already and was on a PE of about 16. So although not expensive, it's not cheap either.

The scenario that Iv'e been following is the FTSE peaking this month in the region of 5350 ( okay today it's above that but ball park ) followed by an 18month long (gentle) decline to around 3800. Which funnily enough is your 40%, although I don't see this as a crash more of a readjustment.

No one has a crystal ball so it's just a case of choosing your macro scenario and cutting your sail accordingly. I'm out of the UK and US and into Europe and Japan plus Gold.

Just to get my usual rant in, I don't think anybody yet fully appreciates the extent and severity of the long term structural damage that NL and Gordon Brown have inflicted upon the UK economy, expect to hear the phrase 'sick man of Europe' being used to descibe our countries economy within the next 2 years.

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To claim that the chart "predicted" the crash in September 2001 is ridiculous - it's like saying the consumer sentiment index "predicted" that planes would fly into the two most potent symbols of Wall St.

It's like nothing of the sort.

Here's why:

1 . The market had already fallen substantially before 911

2 . The impact of 911 on the market sand the economy is not predictable but a function of human nature. To blame any reduction in the index on 911 is mistaken. It's like thinking interest rates up always means stockmarket down. You are ignoring human nature.

3 . Even charts of a single instrument can predict their own future without any recourse to fundamental causal connection such as Michigan Sentiment, so imagine what an element of cause might do. Some might suggest that this can be explained by Jung's "collective unconscious" model being employed spatially across many present generation minds, rather than temporally across many generations. Some sum up this phenomenon in the expression "the market knows best."

In my few years of trading I can't think of the number of times when I looked at a chart and thought: "this needs to go here, but how? Something good / bad has gotta happen." Next thing it does. Look @ katrina and the oil price. $70 dollars isn't just any number. It's the measured move target. You could almost say the measured move fromation predicted Katrina.

In any case, the consumer sentiment index appears to be mostly a trailing, rather than a leading, indicator in the chart as shown - in other words, the market impacts the consumer sentiment index, rather than the reverse. Look where the DJIA upticks and downticks start in time, compared to the MCSI.

I'd agree that over the short term it does appear to be a trailing measure. However, divergence between the MCSI and the DJIA does appear to have some value over the longer term. I'd like to see more data.

The historically high P/E ratio from the article in the first post would have me more concerned,

I have to tell you that there is little correlation between performance of individual constituents and investment ratios, PER included. In terms of the market, median multiples can become overstretched wildly. Not a great measure at all. Infact if you had sold the s&p500 @ its 1990 peak of ~27 times earnings you would have done so @ ~370. It rose over the next 10 years almost without break to a peak of ~1370. A 270% gain. At that point the market PE was ~50. Do yourself a favour and learn to read sentiment (not MCSI but market sentiment).

Edited by Sledgehead

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The FTSE 100 is currently 70% up from it's 2003 nadir, yet is slightly CHEAPER now that back then because companies have actually increased their earnings by more than this amount.

So is the stock market cheap? Well if it isn't now then it certainly wasn't back in 2003. But if you had waited for it to get "cheap", you'd have missed on on 70% growth in under 3 years.

All of which just goes to show that it's futile and pointless waiting for the market to become cheap in order to buy, or expensive in order to sell. There are good times to buy and good times to sell and you should increase or decrease your market exposure accordingly, but jumping fully into/out of the market trying to pick the tops and bottoms is likely to be self-defeating in the long run - and why you shouldn't pay too much attention to "experts" who say the market is 48% or however much over-valued. The market is its own master.

Edited by Van

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In any case, the consumer sentiment index appears to be mostly a trailing, rather than a leading, indicator in the chart as shown

The historically high P/E ratio from the article in the first post would have me more concerned,

Further to Van's very valid post above, casual market watchers fail to appreciate that financial results are AT BEST 6 month sout of date. Presumably you'd base your PE ratio on these (unless you trust analysts to call it right on prospective earnings - if they were we'd never have profit warnings).Call that a leading indicator?

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Further to this the US / UK have discorrelated recently because the chief driver has been oil. Nudge oil up and the US hates it. The UK on the other hand loves it (as long as it' saccompanied by not too much dollar weakness). In this regard I suppose that any decline in the UK would be most severe if not related to oil. However, with harsh winters predicted, it seem sunlikely oil will lose its market prominence.

Meanwhile the s&p 500 put/call ratio looks like it could resume its spring back up from the lows. Such action is usually accompanied by falls in the index itself.

The DOW is down 107 points (1%) now.

...... and ftse is currently set to open flat. Once again Oil has been in the spotlight (new hurricane)

Edited by Sledgehead

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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