Financial Betting Articles

Last week I said that the FTSE would ramp up and wander down for the third time in a row - well done me, have a pound! And Wall Street - it went, oh it went. It saw a new high on Thursday. Have another pound.

This week I'm giving you a macro lowdown, news of a slowdown, where you gonna throw your dough down? Ahem, that is to say, I'll analyse the factors that are at play in the world's economies which suggest that equity markets are 'a bit toppy'.

Last week I mentioned that Chinese stocks were a bit over-priced and low and behold, we have Alan Greenspan, previously top man at the US Fed, chiming in with the 'news' that the Chinese market was heading for a "dramatic contraction." Get with the programme, granddad.

Mixed messages are coming out of America – on the one hand the latest figures show a 16.2% rise in sales of new homes. But on the other there was a 11.1% price slump. The US housing market is instrumental to US economic prosperity. Put simply, a buoyant housing market persuades homeowners they are becoming wealthier and they are likely to spend more. The equity markets ramp up as a result. The fear was that the housing market slump would spread to the rest of the economy. Now some are cautiously optimistic that the property market has bottomed out. We’ll have a much clearer picture of the outlook for the US economy when a raft of important employment and spending information is realised on Friday.

Elsewhere, the Organisation for Economic Development thinks that the UK and Japanese economies will fare better than the US this year. But even they think equity prices are a bit high. Other developments suggest they are right. For one, the FTSE is being pumped up by firms and private equity trying to buy other firms. This consolidation suggests that some companies are running out of capacity for organic growth. Plus private equity is a destabilising influence because it borrows heavily to buy. If the cost of borrowing go up, or lending banks get cold feet about the markets and pull the rug out, the scary private equity edifice could come clattering down round our ears. And you know athe FTSE will cope the fall out in a big way.

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The average daily FTSE range on a Friday this month has been 93.07 ticks, compared to the rest of the week average of 53.18 ticks.

The average daily FTSE move is +56.37 ticks on a Friday this month, whereas the average of the other days in May shows an average daily move of -0.15 ticks!

Deals involving Private Equity (read Gordon Gekko) are now taking place at an average price earnings ratio of 17.6. That is 10% above the P/E ratio for corporate deals. These ballsy guys (BC Partners has 1 female out of 46 players across their 5 European offices) are paying top (someone else's) dollar, banking on being able to slash costs and boost efficiency. Risky business.

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