Sunday, 5 October 2008

The other crash

It is ironic, but the UK housing crash looks a picture of moderation compared to the train wreck called the FTSE. Since it peak last October, this wealth extracting index is down 25 percent. The housing market is only down 14 percent. The purchasing power of cash fell 4.7 percent; which is of course, the inflation rate.

When looking at the FTSE chart, I was struck by the forlorn attempts at recovery. I reckon there were five, with each rally followed by another terrible crash.


Anonymous said...

It isn't the attempts at recovery that worries me, It's the fact every time the market falls it makes a lower low and the extreme volatility in market.

mike said...

I noticed this. Unfortunately the FTSE mini cycles 1..5 are perfect for short term speculators.

The huge upward/downward FTSE index levels seen recently adds to evidence that there are a huge number of shareholders/speculators with their fingers on the buy/sell button.

Even at work I see people monitoring shares daily. These people are no doubt a cancer to the companies involved. Their mind being on share prices rather than real work.

The FTSE level will go lower once higher unemployment and recession kicks in. People who lose their jobs will start to cash their shares because they need the money to live off. Once unemployment has bottomed out then that might be a better time to start buying shares again.

Anonymous said...

Bear markets are noted for their volatility, whereas bull markets tend to make steady increases. This tells me there is lower to go in the FTSE yet. 2009 is going to be a crap year economically. There will be shed loads of bad news (higher unemployment, lower profits, lower house prices, company failures etc etc) that will spook the markets. It will be a steady drip of bad news. My feeling is that the market will not stabilise until late 2009/early 2010. Then will be the time to re-enter the market, for long term investments, as there will be no magical economic liftoff, just hard grind for several years to come. Unfortunately there is no way of recreating the leaving of the ERM in 1992 to provide an instant boost to the economy.

Anonymous said...


The 4.7% inflation rate applies to the stock market and housing as well. Hence the equity and real estate losses are greater in real terms than you point out.

The real purchasing power of over-valued assets is always low or negative in the long run.

To much debt and leverage in the system. At extreme times like these, it's better to take a small loss to inflation than a large loss to falling asset prices AND inflation.

Anonymous said...


Tie in the demographics. We've had 30 years of boomers ageing and funneling more and more cash into equities and bonds as they go through the life cycle. At retirement they cash out.

Much of the bubble was about people becoming gradually fully invested. It wasn't ALL about inflation from Greenspan.

2008 is the year they start to cash out.