Are we in a Recession Already?

[Onlyforfun]

Those of a nervous disposition look away now!

I read an article by a well respected analyst who shall remain nameless to protect my identity who reckons that equities are "cheap" in terms of their P/E ratios (price of share / earnings). I do not debate that this is true when measured against historical averages, but to me the most important question is WHY???

Fact: Money supply is increasing 10-18% per year in the developed economies of the world. This is money created out of thin air, not backed by reserves of gold or even other countries crappy paper currencies.

Fact: Leveraging is at all time highs, and has got to the stage where Private Equity companies are borrowing 5 times their assets to buy more assets, which can then be leveraged again. Economists will tell you this is fine, but economists are idiots. Anyone who can do maths knows that only 1 fund losing 20% has used up it's entire capital and either pays back the loan and tells it's clients "Sorry, your money no longer exists" or frantically tries to chase it's losses. As gamblers yourselves, you know what will happen without me telling you!

Fact: This Private Equity leveraging is taking a lot of potential investments off the equity table. First Data Corp looks like being the latest, worth a mere $24.4 BILLION or 0.2% of the S&P 500.

Fact: More and more money is being invested in the stock market by pension funds as they are required to by law! Now even governments are getting in on the act and buying equities with proceeds of say gold sales.

All together you have a scenario where there is more and more money chasing a smaller pool of investments, while markets are nearing all time highs, yet the stocks are still CHEAP. WHY???

[Win2Win]

The West has been bankrupt for years! Zimbabwe is probably richer :laugh

[Jonny2621]

The answer to your question is YES

There will be some high profile retail casualties over the coming months....you heard it here first

[vegyjones]

who shall remain nameless to protect my identity

You're OnlyForFun! :doh

[Onlyforfun]

Where the respected analyst went wrong in my humble is that he has only looked at 1 side of the P/E equation and concluded that at current earnings share prices are cheap.

It is my argument that earnings are being supported by an unsustainable orgy of debt fed spending by individuals, companies and governments on things we don't really want or need (HD TV's and Middle East wars). It can't last and won't last.

In the past people have had savings to fall back on, now they have debt.

[Win2Win]

I have savings.....:D

.....might not after the 4.50 though!!! :laugh


OFF, you should get a job in the industry :rolleyes:

[Onlyforfun]

Doesn't make much difference when you work for a long-only, large-cap fund. Can't buy all the lovely resource companies I'm making personal quids on...

[Onlyforfun]

What are the Bank of England Doing???

Boom and bust has not gone away, the booms have just got longer and higher, and as sure as night follows day the bust will be longer and deeper.

The RPI measure of inflation is currently running at 4.6%. Last time inflation was in this territory in the mid 80's, interest rates were at 8-11%, but the BoE sits on its hands and keeps rates at 5.25%. Why? Because if it raises rates there is a potential melt down as the masses of debt lead to lower house prices and lower consumer spending, or should I say crashing house prices and no consumer spending. If the only target they really have is inflation, interets rates should be higher.

Could it be that even the Old Lady is becoming political? At least the Fed has the balls to admit it. (And if the Chairman of the Fed or Governor of the BoE are appointed by government can they be truly independent?)

[vegyjones]

Surely that's not being political, just looking at the bigger picture?

[Jonny2621]

There is nothing that isn't political with this mob in charge :(

[Win2Win]

Cameroon for government! :doh

[Onlyforfun]

Surely that's not being political, just looking at the bigger picture?

The whole point of giving control of interest rates to the BoE was to stop them being set on the basis of "the bigger picture" as the bigger picture is almost always short term gain. Inflation is and has always been the biggest threat to economies, but fighting inflation usually means short term measures that involve pain for some of the electorate so politicians working on the basis of a 4 year year term do all they can to avoid the short term pain while stacking up problems for the future.

[Onlyforfun]

It also gives the lie to your Lib Dem proposals for proportional representation. It is difficult enough for a single party with a mandate from the electorate and a parliamentary majority to do what is best for the country as a whole rather than what is best for their electoral prospects. So imagine how little actually gets done in the national interest when a coalition of parties who often have mutually exclusive policies is in power.

As an example, over the last decade, dictatorship China has arguably done best, followed by the "Anglo Saxon" model UK and USA with effectively 2 party states followed by the coalition led Europe.

[Merlin]

Inflation is and has always been the biggest threat to economies, but fighting inflation usually means short term measures that involve pain for some of the electorate so politicians working on the basis of a 4 year year term do all they can to avoid the short term pain while stacking up problems for the future.

Perfectly put......something i`ve said in the past....

so politicians working on the basis of a 4 year year term do all they can to avoid the short term pain while stacking up problems for the future.

[Onlyforfun]

I knew one day we'd find something we agree on! :laugh :laugh :laugh

[Merlin]

:laugh