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Lundi Noir-- Black monday for the global markets


Trampa501
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And as someone already pointed out in this thread, it's wrong. Valuations of FTSE companies are, broadly speaking, not out of line with their earnings.

Isn't it a bit more complicated than that?

P/E ratios are fairly modest by historical standards, but wouldn't you expect P/E ratios to be higher in a period of credit expansion (and abundant cheap energy) than a period of credit contraction and global recession?

Isn't there an argument that company earnings are also based on the continued ability of the populace to purchase their goods and services, something which is only sustained temporarily by government borrowing and spending? Earnings are, therefore, subject to risk of significant downward revision so P/E ratios might be misleading.

That's before you consider the effect of sentiment - when bad things happen equities get kicked almost irrespective of whether the bad thing should affect them or not.

I personally think equities, particularly FTSE100 companies, are amongst the safest places to be medium term but that's not to say they won't get a kick-in in the short term or that their valuations are automatically fair.

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Really! That's got t be the scam of the yearvif true.

There is a report here but it's not the one I meant.

page 26

The simulations suggest that QE has a positive initial impact on nominal asset prices of just over

20% in the central case and lowers the spread of gilt yields over Bank Rate by around 175 basis

points on impact.

http://www.bankofengland.co.uk/publications/Documents/workingpapers/wp442.pdf

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There is a report here but it's not the one I meant.

A few people missing the point about QE. If you sold a balanced amount of shares in the ftse in 1999 you'd get about (assuming £ per point) 40 ozs of gold ( can't be bothered to look up actual price) now you'd get about 5-6 ozs.

The ftse is only high when measured against an awful performing asset like gbp fiat.

There is every reason to suspect that as gbp gets debauched further, the best hedge will be shares in major companies. Their "values" are at an all time low and as long as they have something to sell or let out then their price will keep up.

I have the same fear about houses if we don't start to tear down the scam that is buy to let.

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As the original article points out, the UK is in recession but the FTSE is still at a silly height.

OK, you can argue that much of the FTSE comes from global investments but look around the world and see how many countries are in recession or about to go back into one.

I understand your view on the FTSE.

The FTSE is back to where it was in 1998/99 and given the inflation in those intermediate years, the FTSE has lost atleast 30-40% of its value, which has been painful for the buy and hold investor.

Edited by Take Me Back To London!
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I understand your view on the FTSE.

But the FTSE is back to where it was in 1998/99 and given the inflation in those intermediate years, the FTSE has lost atleast 30-40% of its value, which has been painful for the buy and hold investor.

Don' forget dividends. The picture is better when they're included.

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I know thats not advice, but those are wise words to the amateur.

Ive been tempted by spread betting but when ive tried making a call (on paper) im nearly always wrong on a day basis.

I think it is wise to not get involved with spread betting, it is a rigged game and the majority of people lose.

Relating to your paper exercise, I have a friend who does spread bet and is constantly topping his account up and thinks that he will find the holy grail of spread betting one day, I have mentioned to him the idea that when he puts a bet on, I put an opposite position on. :lol:

Edited by Take Me Back To London!
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I think it is wise to not get involved with spread betting, it is a rigged game and the majority of people lose.

Relating to your paper exercise, I have a friend who does spread bet and is constantly topping his account up and thinks that he will find the holy grail of spread betting one day. I have mentioned to him the idea that when he puts a bet on, I put an opposite position on. :lol:

Isn't shorting a mug's game as well as don't the big funds, banks, etc, know who and how much a particular share has been shorted? In other words, they can then pump that share and break the shorts most of the time - except when there are major melt-downs like 2008/09.

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I think it is wise to not get involved with spread betting, it is a rigged game and the majority of people lose.

Relating to your paper exercise, I have a friend who does spread bet and is constantly topping his account up and thinks that he will find the holy grail of spread betting one day, I have mentioned to him the idea that when he puts a bet on, I put an opposite position on. :lol:

Most of the time you will both lose.

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Isn't shorting a mug's game as well as don't the big funds, banks, etc, know who and how much a particular share has been shorted? In other words, they can then pump that share and break the shorts most of the time - except when there are major melt-downs like 2008/09.

Yes! I would also add, but I am sure you was meaning to cover both sides of a trade, going long is also setting oneself up for a beating, as well as shorting.

It is highly stacked against the private individual without the insider information and competing against high frequency trading computers which create highly volatile markets, which we see on a daily basis. The King of Ponzis, Bernard Madoff, said the financial markets were a rigged game.

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That's entirely plausible: it doesn't mean shares are worth more, it means the £ is worth less. Better to hold real assets than a currency that's being debased as a matter of policy.

Not only that, that new value is only temporary, or stealing gains from the future.

Edited by OnlyMe
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Isn't it a bit more complicated than that?

P/E ratios are fairly modest by historical standards, but wouldn't you expect P/E ratios to be higher in a period of credit expansion (and abundant cheap energy) than a period of credit contraction and global recession?

Isn't there an argument that company earnings are also based on the continued ability of the populace to purchase their goods and services, something which is only sustained temporarily by government borrowing and spending? Earnings are, therefore, subject to risk of significant downward revision so P/E ratios might be misleading.

That's before you consider the effect of sentiment - when bad things happen equities get kicked almost irrespective of whether the bad thing should affect them or not.

I personally think equities, particularly FTSE100 companies, are amongst the safest places to be medium term but that's not to say they won't get a kick-in in the short term or that their valuations are automatically fair.

Yes of course, share values reflect both current PE values and future expectation. Along with things that don't show up in PE and other simple figures, like distinctions between regular and major one-off events. And of course share prices are volatile, and some FTSE companies will perform better than others over any given timeframe.

No argument with you at that level of detail. I was just trying to post the one-line rebuttal of (what I see as) a false premise.

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The FTSE is back to where it was in 1998/99 and given the inflation in those intermediate years, the FTSE has lost atleast 30-40% of its value, which has been painful for the buy and hold investor.

How many shareholders bought at the 1999 peak and never at any other time?

Sure, every shareholder expects to make some losses. We all hope our gains outweigh our losses. Mine certainly do.

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Isn't shorting a mug's game as well as don't the big funds, banks, etc, know who and how much a particular share has been shorted? In other words, they can then pump that share and break the shorts most of the time - except when there are major melt-downs like 2008/09.

Shorting isn't for wimps, but there can be profit in it.

Example: SCO values inflated absurdly when they started litigating against many big companies. To the techie it was clear they hadn't a leg to stand on. If you shorted at $25 and closed your short at $5 or $2 or when they went into the bankruptcy courts, you made good money. But if you shorted at $10 or $15 then saw them rise to $25, did you have the nerve and the resources to hold through that margin call to make a profit? That happened when I had no money to stake on a short even if I'd wanted, but my track record (like those who sold-to-rent in 2003) suggests I'd've made that call too early.

Another example: Ocado was an obvious short when it first floated just under 2 years ago, and its current price is 25% down on the flotation price. But in between it rose irrationally, and lots of people who went short too early closed their shorts at a loss. But someone who caught last year's top could've shorted at 260p and closed at 60p.

Facebook is another forthcoming short for the brave, but I've no intention of trying to time it myself.

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My 2p on spreadbetting.

Buy a book, read all you can about it FIRST. Here is a free resource http://www.spreadbetmagazine.com/

I think spreadbetting for most is like giving a loaded gun to a 5 year old.

When a trade doesn't work out and you feel dreadful, then something isn't working, and this is going to be more common with spreadbetting rather than a normal share account.

Ask yourself how did the trade go wrong?

1. Did you get the direction of the trade wrong?

2. You got the direction of the trade right but somehow the trade went against you initially.

If it was two, then it is likely you do not understand the platform you are trading in. On the spreadbet platform you must be aware of leverage, the spread, and cost of margin. This is in addition to trading with an edge, good profit/loss ratios, position sizing (money management), and using trading rules/system (entry, and exit, indicators). If you don't even understand what I'm talking about, get some books!

a) I suggest you fully fund the account so you are 50% leveraged or not leveraged at all. Beginners bet £25/point and and expect to have no drawdowns at all, and their account is perhaps on £1000 in value. The best traders in the world aim for a 30% annual return and no more than 10% drawdown. Each position ideally risks no more than 2-5% of the portfolio.

B) The spread, every time you put on a trade, you must make the house spread, even before you become in the money. Use limit orders to mitigate this.

c) Cost of margin. I believe this is related to libor. So if you have a position that correlates to £10,000 of stock, you must be aware of the rolling daily charge that is levied. Remember the forex market allows you to put down a very small amount of margin, and you are highly leveraged. It is amazing to think people aren't aware of this. Work out how long you will be in the position for. If nothing happens for x time then you get out. I am not a day trader, and will look at positions that unveil themselves in 3 months. Use the 3 month or 6 month contracts, which do not charge, but your position will need to be closed out before the contract ends.

Some trades will not work out, that is a fact of trading, how do you deal with this? That is why you need a system with an edge.

If you don't have a spreadsheet working all this out beforehand (target to get out, and max loss, % of capital employed), forget it.

With all this to mind, I don't spreadbet anymore, I buy the actual shares using no debt, as it suits my mindset.

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£ is over €1.24 this morning, the first time since the end of 2008 according to some historical charts I've looked at here http://www.oanda.com/currency/historical-rates/

Brent Crude below $113 for the first time since early Feb. Repercussions may not all that bad if you're planning on driving to Europe this year.

Edited by deflation
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