Michael Wilson goes all dewy-eyed about the prospects:
The light at the end of the tunnel, they say, has a nasty habit of turning out to be an oncoming train. And as we drag wearily into the fifth year of this bear market – the longest since the 1930s, although not the deepest – we can be forgiven for mistrusting our senses. Is that watery thing in the sky really the sun coming out again in Asia and Mexico? Can that whistling from Wall Street be the cheery sound of the S&P 500 heading back toward its late-2007 highs? Why are all the little gold bugs scurrying about the place, burying their nest-eggs again for safe keeping? It all feels sort of wrong somehow.
The cynicism is understandable. With St Leger Day still a month away, and with trading volumes still pitifully low, it’s tempting for us to put it all down to a post-Olympic buzz. September is a dangerous month, they tell us, because that’s when we all return from our holidays to find that the economic situation hasn’t really changed since the last time we had any useable figures in June or July. And indeed, there are real reasons for scepticism right now.
The Eurozone’s leaders still haven’t managed to pull out a workable deal for the single currency, and the group or 17 countries is perilously close to technical recession. Britain’s RPI inflation index has just blipped back up to 3.2% – an ominous sign, by the way, at a time when oil prices have been subdued – and George Osborne has been told by the IMF that his severe austerity programme is throttling our chances of recovery. America’s blissful return to spend-spend-spend is clearly flying in the face of the fiscal disaster that still awaits at the end of this year, if and when President Obama’s automatic budget-slashing regime comes into force. And so forth.
But the last few days have posed some genuine questions for the pessimists to answer. The Footsie’s close on Thursday was 11% up on the start of June, and the battered FTSE Eurofirst 300 was a full 16% up. (Although admittedly still 32% down on its all-time high of 1611 in May 2007.) And yes, the gold price is showing no signs of heading for the $2,000 mark that so many have been predicting. Its dawdling around $1,600 since May is a clear enough proof that nobody is in panic mode.
Ah yes, say the pessimists, but is that enough? Consider, for instance, the fate of Facebook, whose shares have just dropped below $20 after the expiry of the deadline that prevented IPO purchasers from selling. Many of them are nursing 50% losses. And could it be that the main reason why mineral prices are still so subdued is that food prices in the developing world are expected to soar, thanks to climatic disruption and a lousy harvest? Surely that doesn’t point toward a resurgent Asian economy?
Again, good points, all of them. But those of us with a quaint oldfashioned faith in mean reversion are looking at the long term trends, and we’re looking at the amazingly attractive p/e ratios in London, and we’re taking heart from the failure of the bond market to implode. And we’re concluding that the heart and lungs of the body corporate are in better general shape than the year’s doomy headlines have led us to believe. If we’re correct, then we may be approaching a significant buy moment.
Tags: austerity | bear market | eurozone | fiscal disaster | footsie | George Osborne | gold bugs | inflation index | light at the end of the tunnel | michael wilson | nasty habit | nest eggs | obama | oil prices | ominous sign | oncoming train | pessimists | single currency | st leger | workable deal