The Window Is Closing On The Stock Market
I know quite a few people who are still invested in the stock market – if not up to their necks, then certainly for a lot of money. They smile knowingly and say, “Do you know a better place to have made money in 2010?” The answer is, “Yes – gold”, which is where I’ve been. Nevertheless, they do have a point: had I held less cash – and added Stocks to my portfolio – last year would have been even better than it was for my… [investment portfolio. That being said, I’m staying] out of the stock market until the FTSE reaches 3000 [and/or the Dow reaches 6,000 and/or so the S&P 500 reaches 600!] Words: 975
So says John Ward (hat4uk.wordpress.com) in an article* reformatted and edited […] below by Lorimer Wilson, editor of www.munKNEE.com, for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Ward goes on to say:
The key thing propping up the stock market is the lack of returns elsewhere. As China uses rates as a brake, our rates will have to follow. Get that rate up to 5 or 6%, and conservative investors will pull out of the stock market in favour of greater security. Also, as America has chosen to carry on bashing its Federal credit card, bond rates must rise too. In the EU that is a cast-iron certainty and once Greece finally caves in (with more PIIGS coming into the barnyard) the money will switch [from investing in the stock market] into Asia and gold. With bonds unsafe and retail banks still desperate for funds, T-Bills and bonds will produce yet bigger yields.
Editor’s Note: Don’t forget to sign up for our FREE weekly “Top 100 Stock Market, Asset Ratio & Economic Indicators in Review”
An Economic Vortex of Events Will Lead To a Dramatic Decline in the Stock Markets
Given the above assertions – and like anything to do with investment, peculiar events plus eccentric government intervention could change the outcome dramatically – what might be the sequence of events that leads to a halving of the FTSE [and other stock market indices]? Bear with me while I lay one out, in summary, the likely scenario:
Chinese slowdown continues….rates rise further….U.S. recovery too timid….flight from eurozone bonds….EU/UK rates rise….China continues diversification away from T-Bills….Bond yields skyrocket….crooked money exits Bourses….rate rises make UK and US look more unsafe….UK deficit remains and debt grows….EU default/bailout shocks….eurobonds deserted….desperate banks up rates again….as exports drop, China clamps down further on imports….German exports collapse….bourse confidence falls as sophisticated money exits….confidence crisis in US worsened by election year….EU bank debts become due….ECB has to step in again….citizen unrest across EU….banks so desperate for inflow, increase rates again….UK makes noises about inability to fund further QE and bank bailouts….Germany leaves EU but bails out worthwhile members….bonds and T-Bills now at record levels….French output plummets….with nothing else to trust, everything….cash, stock investments, bank deposits, commodity investments, bonds….deserted in favour of Chinese Yuan, gold, Swiss franc and Asian assets….to prick asset bubble, Asia clamps down completely on lending….China starts using cash mountain to buy Europe….White House frozen in headlights, UK Coalition collapsing….Dow and FTSE stock markets in freefall to [6000 and] 3000 [respectively]….(To be continued).
The obvious end-effect of this vortex would be a world of nations gathering behind trade barriers, and a shrinkage in global trade of hitherto unknown proportions. In this doom-scenario, remember that we haven’t even included Russia (bankrupted by falling energy demand), Australia (bankrupted by falling raw materials demand) or Brazil (printing money with abandon as its economic miracle evaporates.) At or soon after this point: a) hyperinflation would be endemic in almost every country, b) military takeovers would be rife, c) international tensions would be strained to breaking point and d) middle-class wealth would have been vapourised.
Frankly, whether the FTSE is at 3000 or 56 by then becomes somewhat academic. My point is this: ask yourselves these questions: 1. Zero rates aren’t working, and China is raising rates. Would you, as the US Fed Treaurer, Trichet or Mervyn King, have to follow suit sooner or later? (Yes)
2. Confidence in the safety of most Sovereign debt is shot. Wouldn’t you as a bond investor insist on higher yields? (Yes)
3. Could you, as a retail bank conglomerate CEO, do your fiduciary duty and NOT raise rates? (No)
4. Given the bankers and multinationals care only about profits and shareholders, will they plough money into the economy – or be guided by Corporate Finance Directors in looking for better returns and more safety? (The latter)
5. If in the light of better, safer options elsewhere, do you have the confidence to stay in the stock market – with recovery looking limp – once the smart money makes an exit? (No)
If you agree with two or more of the answers above, it may well be time to rethink your position in relation to investing in the stock market. The choice is yours.
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
- Sign up to receive every article posted via Twitter, Facebook, RSS feed or our FREE Weekly Newsletter.
- Submit a comment. Share your views on the subject with all our readers.