Barclays £3bn Writedown - Ftse100 Up 105pts

[Methinkshe]

But the P/E of thre FTSE 100 is around 12. The long term averaqe is around 25. It was 30 at the end of 1999.

Yield is around 4% compared to a long term average of 2%

http://www.fool.co.uk/news/comment/2006/c060606d.htm

Is the downturn not already priced in?

I can only respond with another question.

To what extent is the equity market driven by short-term speculation as opposed to long-term investment where such old-fashioned concepts like "yield" are relevant?

Now, if A.Steve calls himself an amateur, I am even lower than that in the pecking order when it comes to understanding the operations of stock markets. However, for what it's worth, this is my opinion.

Ever since tracker funds and similar became de rigueur, stock market movements seem less to reflect underlying value and more concerned with price movements for their own sake. This operates as a self-feeding mechanism in either direction. Rises perpetuate rises and falls perpetuate falls. It takes a massive shock to cause a turn in direction.

Everywhere one looks, markets are driven by speculation not real value. There was no "yield" reason for the property market to rise to its current levels - in fact, if yields had been factored in, the property market should have crashed years ago. The same is true of commodities and equities - or so I believe. The world is awash with cheap credit (money raised by debt) and it is being used for speculation. It has nothing to do with real growth or yields, and everything to do with the death throes of a financial system based on exponential growth of debt.

[Ash4781]

US Federal Reserve and European Central Bank pump an extra $82bn into banking system

http://business.timesonline.co.uk/tol/busi...icle3864287.ece

[Confounded]

Don't bother trying to reason rationally with these guys.. it's all a massive consipracy to them.

I am one of those nutty conspiracy theorist who believe one market (DOW) has effectively gone onto life support. However it is hardly a conspiracy theory that people are trying their best to avert a complete financial meltdown. Falling house prices a credit crunch and an equity collapse could lead to what some of the more extreme posters on here have been warning about for a while. What I see is blatant manipulation of the key market that in turn gives stability to the World markets which effectively track it, it would be more worrying if they allowed the system to consume itself into total oblivion.

Don't take my words for it just watch the DOW live and draw you own conclusions (www.ADVFN.com once you register gives you live streaming form the DOW). It may just be a mechanism that has some how been built into the computer trading systems but a hand is always there to pick it up at critical points scoring technical boost and positive finishes where possible. I do not believe the DOW or FTSE is in a bubble of the like we had in the Tech bubble, but given the outlook for the global economy if they cant get the credit flowing freely again I would say they are severely over valued.

I caught an address by Bush to a company he was visiting yesterday where he ran though all the policies they are deploying to rescues the US economy. On the key policy he was begging them to take the cash bonus of up to $1600 for a 4 person family and to go and consume. It was very reminiscent of the call to spend to victory after Sept 11 and came across as very desperate, they have opened the policy to every American even ones that are not registered for tax. They are desperate to chuck as much money into the system as possible by whatever means (suspect there is a great opportunity for fraud coming up because they are that keen to pump it out).

Reading sites like this and the links it provides makes you very aware of how fragile our economies are, we have developed economies that so heavily rely on debt that confidence needs to be maintained at all time otherwise the whole lot will collapse. With the DOW “recovering” a key confidence builder and with the policies put in place to deliver better than expected GDP growth in the US just prior to the election they have probably done all they can to provide the confidence needed to prevent the wheels from coming off this side of 09, however it does depend on how freely the Americans buy into this call to consume for victory given the consequences they faced after the last call, however the worst case scenario is it all goes into paying off debt and into recapitulating the banks, a very cleaver move.

But hey, don't try and reason with us we are just hell bent on warning everyone one that the conspirators are out to get us, rather than trying to analyze the current state of the markets during one of the most extreme financial crisis’s in history.

[Guest mSparks]

I like how Reuters word the raising of the reserves ratio:

Banks will be allowed to hold more funds at the Bank of England

and Noel, go onto http://www.digitallook.com, browse FTSE100, import them into a spreadsheet, and calculate the average yield. I think you will find it is significantly less than 4%. - In fact, I think you will find, the only companies actually returning more than 4% are banking/finance - and thats because the market is pretty much expecting most of them to stop issuing any dividends - or at least cut them signifancantly.

Edited May 3, 2008 by mSparks

[Killer Bunny]

The market rose the last few days because of manipulation - yesterday the US jobs ********.

I am 90% sure it will now fall from here. How far? Too early to tell. 5-10% would be easily achievable.

[A.steve]

But the P/E of thre FTSE 100 is around 12. The long term averaqe is around 25. It was 30 at the end of 1999.

Yield is around 4% compared to a long term average of 2%

http://www.fool.co.uk/news/comment/2006/c060606d.htm

Is the downturn not already priced in?

Sorry - you're answering a different question to the one I intended... because I suggested P/E is high when I meant to suggest that yield is high. (Doah! Corrected in red.)

With this correction, I think, my question still stands.

I suspect, having read more news, that the markets are reacting to the Fed/ECB plan to inject yet more liquidity.

I still feel that equities are over priced - but I'm pretty short on reasons to justify that gut feeling... aside from anticipating an economic downturn arising from an increase in the cost of servicing debt.

[Joey Buttafueco Jr]

I like how Reuters word the raising of the reserves ratio:

and Noel, go onto http://www.digitallook.com, browse FTSE100, import them into a spreadsheet, and calculate the average yield. I think you will find it is significantly less than 4%. - In fact, I think you will find, the only companies actually returning more than 4% are banking/finance - and thats because the market is pretty much expecting most of them to stop issuing any dividends - or at least cut them signifancantly.

I downloaded historical data from Bloomberg all the way back to 1993. I recall the yield was 4% but will check on Monday.The point being that the yield and P/E were a fair way from their long term averages.

[ccc]

The market rose the last few days because of manipulation - yesterday the US jobs ********.

I am 90% sure it will now fall from here. How far? Too early to tell. 5-10% would be easily achievable.

Didn't you say that we can expect to see the DOW up at 16000 ?

Not being picky just interested why the change of view ?

BTW being from Scotland you may be pleased to hear that I reckon Edinburgh YOY figures will go negative in July. Have a peek at the Regional forums for the latest Gossip up in Jockland !! One of the big boys (David Alexander) is telling everyone through the VI Scotsman to sit tight and not sell. At the very same time his property investment company(Heritors) is selling off all it's prime Edinburgh stock !!

Definitely a case of watching what people do with their own money, rather than listening to what they tell you to do with yours...

[stonethecrows]

Didn't you say that we can expect to see the DOW up at 16000 ?

Not being picky just interested why the change of view ?

BTW being from Scotland you may be pleased to hear that I reckon Edinburgh YOY figures will go negative in July. Have a peek at the Regional forums for the latest Gossip up in Jockland !! One of the big boys (David Alexander) is telling everyone through the VI Scotsman to sit tight and not sell. At the very same time his property investment company(Heritors) is selling off all it's prime Edinburgh stock !!

Definitely a case of watching what people do with their own money, rather than listening to what they tell you to do with yours...

Schizophrenia?

Nah, actually (and FP Im sure will correct me if Im wrong) I think he said it would be at 15000 2 months from when he said it (around 4 weeks ago now) BUT he did go on to assert that he thought that because Walmart shares had risen that the US would be out of recession in that same time frame which Im afraid to say I STILL think is wacky in the extreme to put it mildly!! It's gonna take a bit more than a few funny money tax cheques to joe public to spend their way out of this one I tend to think given all the negative data regarding employment in the US and the fact that most commentary is of the belief that the housing market there has still got qute a bit further to fall. We in the UK aren't even getting warmed up on that front yet.

Edited May 3, 2008 by stonethecrows

[Errol]

In an inflationary scenario (which is clearly playing out) I would expect to see Dow and FTSE rise to new highs. The same happened in the Weimer Republic.

[A.steve]

I downloaded historical data from Bloomberg all the way back to 1993. I recall the yield was 4% but will check on Monday.The point being that the yield and P/E were a fair way from their long term averages.

My point was that I don't believe that the P/E figures published today are credible because they were calculated without taking proper account of the change in the availability and cost of credit.

Edited May 3, 2008 by A.steve

[yellerkat]

FP always suggested DOW 16,000 was short-term.

Anyway; now it's May - sell and go away!

[Joey Buttafueco Jr]

My point was that I don't believe that the P/E figures published today are credible because they were calculated without taking proper account of the change in the availability and cost of credit.

So how much, approximately, do you reckon the P/E is out by?

[A.steve]

So how much, approximately, do you reckon the P/E is out by?

Now you're expecting me to have useful information.... I really don't know... and, while my thinking, I admit, is confused - this is what I'm thinking.

In some sense share prices are always at "fair value" - because they are openly traded... if the market had confidence in their value, prices would remain static or rise even if cash was in short supply because volume can drop without the indices dropping. This means that the market is already taking a negative view on share prices relative to published P/E ratings. You might argue that this is "priced in" - but that presumes that all participants (including indirect participants) are as well informed about the credit situation as professionals (and/or dedicated amateurs). I think that a huge number of investors are heavyweight on stocks and shares because they don't actively manage their pensions - and are (possibly) reassured by low P/E and high yield expectations. I think this means that, to steal an MPC term, the risks are to the downside with stockmarket prices as a consequence of P/E. I would err the other way if we'd recently seen earnings figures being aggressively adjusted - but, as far as I'm aware, that hasn't happened.

I'm expecting a recession (technical or otherwise) in the UK because I can't believe that we will see retail growth in spite of a massive decline in MEW and other secured borrowing that will necessarily arise as a result of lower house price expectations. I can't predict how deep or for how long - but it strike me that it hasn't started yet. I'm hearing early indications - lots of redundancies being announced - but these people are likely working up-to 3 month notices, so they won't affect the employment figures until later this year. Consumer confidence is at a spectacular low and I think this is a good forward indicator of a downside risk for everything retail - including retail employment. From an anecdotal perspective, I'm seeing two trends in retail prices... well researched purchases are spectacular value for money - while, on the whole, prices are rising sharply... the widening of the gap between the price of good and bad purchases of retail commodities suggests to me that profits in the near future are less certain than they were in the recent past.

I also see a re-pricing of risk with respect to commercial debt leading to a downturn in takeover bids - which again will suppress stock market prices.

While I'm fairly confident that today's low P/Es are not a sound reason to buy now, I can't say if the asset prices will decline faster or slower than the earnings. P/E - I think - is an OK way to choose between shares in different companies in the same sector, but not as a way to choose shares over another asset class. The information I'm missing to make a sensible guess is the extent to which those who hold stocks and shares will need to realise these assets in the near future - it is beyond my ability to even approximately quantify... but I'd be surprised if the proportion over-stretched is not significant - especially considering the rally we've seen over the last month and a half... which - I again suspect - was ignited by an optimistic judgement about the likelihood of a bank bale-out to re-ignite credit growth.

[The Masked Tulip]

Signed my ISA form, licked stamp, am about to post. It was wroth 10,850 back in Oct, went down to 9,700 and in the last fortnight has gone up to 10,300. Time to get out methinks. That's what confidence I have in the FTSE.

[Fergie]

I'm keeping around 1/3 of my money in equities for now. I honestly don't know where it's going, but compared to property, it's not in a bubble imo. I have a feeling the gains this month have been due simply to it hitting April, when people can stick money into ISAs, and there is definitely still a tonne of bad news to come out. But the banks have already lost 50% at least since their heights, and whatever happens, it's a hedge. If inflation really takes off, and Sterling tanks, stocks will rise, and the value of cash holdings will go down. If you look at the DOW, for example, it hasn't tanked in dollars, but it has tanked against other currencies. It's all a balance. I wouldn't want everything in equities, but as a best guess and a hedge, having a percentage in it seems wise.

[A.steve]

Signed my ISA form, licked stamp, am about to post. It was wroth 10,850 back in Oct, went down to 9,700 and in the last fortnight has gone up to 10,300. Time to get out methinks. That's what confidence I have in the FTSE.

I've a miniscule unneeded Endowment (don't ask) which I intend to pull next week... assuming I find time. A matter of principle thing rather than a sum that would make any difference to either me or the markets.

I want to make a small investment in specific FTSE firms (details hazy to me at the moment) - but I feel that now is the wrong time to jump on board.

[A.steve]

If inflation really takes off, and Sterling tanks, stocks will rise, and the value of cash holdings will go down.

Can anyone comment about whether stocks out-paced savings during the 70s stagflation? If so, by what margin? How relevant was timing with respect to the oil-shock?

[The Masked Tulip]

Ah, Wall Street is open on Monday - no US public holiday.

http://www.buyusa.gov/uk/en/us_bank_holidays.html

[JustYield]

I am 90% sure

What?

[SurgeonGeneral]

I can only respond with another question.

It has nothing to do with real growth or yields, and everything to do with the death throes of a financial system based on exponential growth of debt.

Yep. It's gonna follow houseprices to the floor.

No discretionary spending means no spending means no profit means no investment means no lending no growth and devlopment etc...

[A.steve]

The market rose the last few days because of manipulation - yesterday the US jobs ********.

I am 90% sure it will now fall from here. How far? Too early to tell. 5-10% would be easily achievable.

I'm encouraged that we agree - though my confidence in everything I've said is far lower than 90%.

One question... Why do you think that the US jobs information was anywhere near as significant as the co-ordinated Fed/ECB operation?

[The Masked Tulip]

I personally feel this is a dead cat bounce on a ledge over an enormous precipice... with lots of jagged rocks...

[Killer Bunny]

Didn't you say that we can expect to see the DOW up at 16000 ?

Not being picky just interested why the change of view ?

First, I said 15000 this year. I haven't changed this view at all.

[Killer Bunny]

Schizophrenia?

Nah, actually (and FP Im sure will correct me if Im wrong) I think he said it would be at 15000 2 months from when he said it (around 4 weeks ago now) BUT he did go on to assert that he thought that because Walmart shares had risen that the US would be out of recession in that same time frame which Im afraid to say I STILL think is wacky in the extreme to put it mildly!! It's gonna take a bit more than a few funny money tax cheques to joe public to spend their way out of this one I tend to think given all the negative data regarding employment in the US and the fact that most commentary is of the belief that the housing market there has still got qute a bit further to fall. We in the UK aren't even getting warmed up on that front yet.

You're right I will. 15000 this year! I told people to look in 2 months as to what was happening - NOT that it will be 15000 then. It's amazing how one's words are so twisted - irrespective of unfortunate errors. :angry: