Do you remember the end of 1999? New Year’s Eve? Tony Blair trying to sing Old Lang Syne with the Queen? The non-event of the Millennium Bug? The Millennium Dome? There was even the old chestnut of ‘The World Will End’!
In the investment world we were so happy then. We had experienced an 18 year Bull Market, OK there had been a couple of small spats in 1987 and 1994 but they were no big shakes and were over and done with within a couple of years then markets marched on and on and on; until December 1999.
Towards the end we had experienced the tech boom where internet companies were deemed to be amongst the highest valued companies in the Wold even though they didn’t produce any profit.
Then the bubble burst. The FTSE 100 went from its all-time high of 6950.6 down to its lowest point since then of 3567.41 in January 2003.
Even by August 2001 there was an expectation that this would just be another dip caused by the tech boom that would be over in a couple of years and on 1 September 2001 the index actually started to go up but then came 9/11 and Al-Qaida crashing into the twin towers in New York put paid to any recovery and the markets all round the World plummeted down further.
It’s now June 2014, 14 years have elapsed and we have still to see the FTSE 100 reach 6900. It reached 6721 in October 2007 then dropped again to 3830 by February 2009 from which it has climbed to its present level of around 6870 as I write this.
So, if we are knocking on the door of 6950; the previous all-time high, what is the prognosis for the future?
To look forward it might first be appropriate to look back. I know you shouldn’t expect the future to be like the past. The financial regulators have been telling us this for many years now but history does have a role to play in trying to make sense of the present and near history and trying to predict the future and learn the mistakes of the past.
Barclays Capital have done an equity gilt study that shows the length of time bull and bear markets have lasted for since the year 1869 and, apart from the very first bull run that lasted 30 years from 1869 to 1899 – probably fuelled by the industrial revolution – every other phase has lasted between 13 and 18 years. (Apart from one bear year which was 21 years; the one after the 30 year bull run mentioned above).
The person who showed me this chart is a respected investment guru who predicted a 10 – 15 year sideways market in 2001 and thinks that the reason for this regular 15 year(ish) cycle is peoples experiences and the length of time they remember the bad times.
Of course the fundamentals need to be in place before any positive movements can be expected and we are seeing these being put into place especially in the UK and US and even in Europe.
Some interesting facts that have emerged are that:
• The number of people in employment in the UK is at an all-time high. Not necessarily in percentage terms but hopefully this will improve especially if the next government continues the trend to get people off benefits.
• Although public sector jobs have reduced by 0.8 million since the present government came to power, private sector job creation has far exceeded this figure with 1.9 million jobs.
• Interest rates are expected to remain at their all-time low until at least June 2015 and when they do go up (which is inevitable at some time) the rate of rise will be very gradual.
• The Bank of England has several options that it can use before the final one of increasing interest rates. They can force mortgage lenders regionally to restructure their offers, restrict the help to buy scheme to certain regions and increase pressure on lenders to be more draconian in their requirements; again regionally if appropriate.
• Household debt has fallen from 160% in 2007 to around 140% now. There is some concern that this is still too high but the trend is still for it to be reducing and will probably continue in this vein until real-term positive wage rises occur.
• Inflation is not a problem for most Western countries being at a reasonable 2% in both the UK and US. In fact it is possibly too low in Europe and there is an expectation that they may need to do some quantities easing before their problem becomes too bad and they slip into a Japanese style of permanent deflation.
• Sterling is expected to weaken over the next 12 months which will make our exports cheaper abroad.
• There is a lot of cash that is being held in corporate bank accounts that will, eventually, be used to fund expansion and development plans to find new markets for their good and services and to fund acquisitions of competitors.
All in all, it is quite frustrating for those in the know and can see that these ‘ducks’ are all in place yet nothing is happening. However, this status quo cannot continue for much longer and there does seem to be a shift of emphasis with even the Daily Mail and Daily Express putting front page statements that stock markets will rise very soon.
“So when?” I hear you cry. The answer to that appears to be 7000! At least when looking at the FTSE 100.
The figure of 7000 is expected by many to be the magic bullet when the next Bull run will start. This is such a psychological barrier that, once it has been breached, the investment community seems to be of the opinion that the next Bull Run is ON!
If history repeats itself then you should make sure you put a note to yourself on 31 December 2030 “SELL, SELL, SELL! Then go and watch King Harry and Queen Kate do the Conga.