The FTSE - semi-wild guesses about fair value

I suggested on Wednesday that the market may already have lost much of its bubble, considered in real terms, and here below is my simple attempt at chartism.

What I've done is to draw two purple lines, one connecting the lows in the mid-80s/early 90s, and the other the highs in the same period. I've chosen that time-frame because it's before the silliness of the late 90s, and it does also include a period when the UK economy was in the doldrums.

Using these parameters, the late 90s and early 00s were well above trend, whereas last year's highs only just peeped above the upper line and the current value is hovering a little above the centre of the hi-lo wedge.

The implications are that the next low, if it comes soon, shouldn't be worse than around 4,500, and by 2010 (when I'm guessing the tide will turn) the bracket would be in the 4,700 - 7,000 bracket, with a midpoint of c. 5,850.

Taking the market at close yesterday and extrapolating to that 5,850 midpoint, would imply a future return (ignoring dividends) over the next 16 months, of c. 2.5% p.a. - not nearly as good as cash, especially in an ISA. On the same assumptions, to achieve an ex-dividend return of 6% p.a. would require entry into the market at c. 5,400.

On this tentative line of reasoning, we should be looking for a re-entry opportunity somewhere in the 4,500 - 5,400 level, say 5,000. Shall we wait for the next shoe to drop?

Inflation vs deflation - the iTulip debate

Find the time to have a look at this in iTulip. Lots of plums in this cake, including a suggestion that the USA is quietly negotiating a replacement for the dollar, with the Chinese. And 30% annual inflation in a few years' time.

How much of the crash is behind us?

The FTSE is closing somewhere around 5,666.10 today. It closed at 5,709.50 on 17 February 1998, which was the first time the market had breached today's level.

So we've spent a little over 10 years to get nowhere in nominal terms, and meanwhile the value of money has dropped by approximately 25%.

Yes, shares pay dividends, but most people buy them as part of some collective arrangement that involves initial and recurring charges and/or fees. After charges (and taxes, remember), it would have taken a net dividend yield of about 3% per year simple, or 2.65% compound, merely to replace the value lost to inflation.

So quite possibly the putative investor in the FTSE has actually fallen behind where he was in 1998.

Are the pessimists lagging behind the news? Has the worst happened already?

Littlejohn vs Toynbee

"... do you think about global warming when you're flying to your villa in Italy?"

A sought-after moment, I believe.

Investment in agriculture sparkles

Watching the idiot's lantern last night and who should be interviewed (on the subject of food prices and speculation) but Hugh Hendry, about whom I wrote last year. And his CF Eclectica Agriculture Fund currently ranks top out of 317 in the sector (up 35% in a year).

Of course, the poor are being hit badly (not the poor here, who aren't really poor). Hendry argues that rising food prices will encourage more (and much-needed) investment in agriculture.

Taking a line for a walk

Timothy McMahon at FinTrend reckons we should be looking to buy into US stocks this summer, using the rate of return graph above.

How far should we heed the chartists? Like cardsharps fleecing marks on a sinking Mississippi paddlewheeler, are they better at short-term plays, but inattentive to catastrophe?


Wreck of the "Sultana" off Memphis, Tennessee, April 27, 1865

Does freedom from self-destruction need a nudge?

I recently wondered whether freedom may not sometimes be an internal issue, as well as external. Isn't addiction a condition of being unfree? Is there some way of helping the unfree, without illiberal coercion?

As it happens, this is the thesis of a new book, "Nudge", by Richard Thaler and Cass Sunstein. It is critically reviewed by David Gordon here on the Mises website.

We are already being heavily nudged by our tax-greedy government and large commercial concerns, to gamble and drink away our wealth and future security. Surely there are ways in which we might diminish the temptation a little, to increase the possibility of rational, self-beneficial choice.

Comparisons are odious

Why has the American stockmarket done so much better than us since 1990?

And which way will these lines turn now?

Plodding On

Lead story in The Grumbler today: "Police are forced to cut frontline jobs to save on fuel cost".

Of course, there's always foot patrols. Peter Hitchens has often pointed out the usefulness of walking the beat in preventing crime. It all went wrong in the Sixties. As J. B. Morton wrote in his fantasy-satirical "Beachcomber" column in the Daily Express at that time:

"A Dictionary For Today

...FLYING SQUAD: A special contingent of police whose business is to arrive at the scene of a crime shortly after the departure of all those connected with it."

So much for the pale blue Ford Anglia and the comical attempt to imitate American cops as portrayed in shows like "The Streets of San Francisco."

I had to trawl around to find what I remembered as the origin of the term "bobby on the beat", but here we are at last:

"A standard piece of police equipment from the 1830's to the 1880's was the rattle for raising the alarm, most operated like the standard football rattle, when twirled round it made a distinctive sound. In the 1880's the police began using a whistle in place of the rattle, early versions used the 'pea' type (still used by football referees) but in about 1910 the more familiar tubular 'air whistle' was invented. The whistle was carried inside the front of the tunic or jacket attached to a silver chain which was fastened to a button on the front of the tunic. When breast pockets appeared the whistle moved to the right hand pocket with a silver chain still attached to the jacket button. In practice the whistle was found to have limited range and a bobby calling for assistance would often beat his truncheon on the pavement to alert nearby colleagues. Police personal radios appeared in the 1970's and some forces had lost their whistles by the 1990's but other forces felt it was a part of the uniform and have retained it."

(Source)

And it worked. So instead of moving forward to the world of "1984" or re-creating the secret police of the Austro-Hungarian Empire, why don't we build on the notion of "Police Community Support Officers" (or "The Ankh-Morpork Watch" as my wife calls them) and revive the Watch as it was up until the early nineteenth century? The roots of our police force are in the citizens' right and duty to maintain order in their own communities. As motorised mobility for the peasantry declines, crime, its detection and punishment may well become localised again.

And a reduction in sophistication would be appropriate. The old police recruitment poster said "Can you Read? Can you write? Can you fight?" - not, "Can you gobble the punter's biscuits and swill his tea while expressing sympathy for his unfortunate experience and sharing his frustration at the powerlessness of the criminal justice system?"

Handy-dandy, which is which?

The two countries here each went to the polls to ascertain the will of the people.

The result in one case was declared unsatisfactory by the ruling party and an order given that the issue be readdressed within three months.

The result in the other case was declared unsatisfactory by the ruling party and an order given that the issue be readdressed within four months.

Robert Mugabe has yet to declare his candidacy for the Presidency of the European Parliament.

Now what?

Grasping the nettle

Read in the Daily Express (no snide comments, please!) appalling article about Stalin's "Poison Dwarf", Nikolai Yezhov, who was responsible for the deaths of some 3 million people, most of them innocent.

I suppose it's a dangerous question to ask, but is assassination always morally wrong? Was the life of Nikolai Yezhov really worth the lives of 3 million of his victims?

This article justifies it in the context of Israeli national self-defence (no spittle-flecked anti-Semitic comments, please, the same arguments can be expressed using other contexts), but what if the enemy is within one's own society? For example, was Stauffenberg correct in his attempt to blow up Hitler, his leader?

I suppose this must lead to the question of whether right and wrong actions receive their due in another world, rather than this one, where villains appear much safer, live much longer, than the innocent. Mao, Stalin, Pol Pot, Idi Amin...

Our dear representatives

htp: "Nomad", in his comment on the EU Parliament post yesterday.

Why has Bill Gates stepped off now?

Watched a programme last night about Bill Gates and his decision to concentrate on philanthropy in future. I didn't quite buy his body language when he was talking to Fiona Bruce, especially on the topic of the business strategies employed by Microsoft against Netscape, which triggered-off a massively expensive court case brought by the US Government.

What I've read about business moghuls suggests that, however rich, they never want to give up. They can always try to get bigger and outdo, or do in, a business rival. Robert Maxwell's downfall was his obsessive competition with Rupert Murdoch, which got down to the personal. For example, learning that Murdoch had flown to New York for a business dinner at a swanky restaurant, Maxwell immediately got on Concorde and shot across the Atlantic, so he could be at a neighbouring table.

And these people will compete in the smallest way. I read an article which said in passing that while his chauffeur-driven car was waiting at a red light, Maxwell saw next to him a very nice sports car (possibly a Ferrari). He leaned out of his window and helpfully informed the neighbouring driver that his rear tyre was flat, so that as the man glanced back, Maxwell's car could be first through the intersection when the lights changed.

So why is Gates, such a fierce competitor that his employees refer to themselves as "Microserfs", "retiring" at 52? Is it because he is smart enough to know when his business has peaked, and seeing a rival in Google (and a challenge from freeware) that he can't beat (despite his firm's attempt to purchase Yahoo!), he's withdrawn before defeat is clear? In which case, what are the implications for investors in Microsoft?

Shut down the EU Parliament

Just looked up a bit about my Parliamentary MP, whom I never see or hear. It set me thinking.

Who is your Euro MP? Exactly. And compared to EU MPs' pay, exes, fiddles and nepotism, Westminster MPs are poor relations and almost Simon-pure.

What do you think will happen when "ever-closer union" (that definition of a black hole) is achieved? A boom in ermine and coronets, silk swags and bunting, grand sandstone palaces, plum strudel at Demel's, superb black coffee, and secret police.

Somewhere even now, a new Jaroslav Hasek is inventing a new Schweik.

UPDATE

Here's how to find your MEPs. Does anyone you know, remember voting for them?

Disaster, illustrated

Ross Perot has returned to warn America again of the dangers of her unbalanced economy. Click on the link in the previous sentence to see Perot's site and charts.

htp: Michael Panzner, quoting the Washington Post.

Sackerson's challenge

We're not really poor if we're drinking bottled water.

When I was advising clients on pensions etc, I'd go through the usual regulatory rigmarole on affordability, and on paper they would only be able to do £20 or £50 per month. I'd be putting myself at risk recommending more than they could "afford".

But in many cases, next time I saw them, they'd done one of the following: (a) bought a new car on credit; (b) allowed their partner to give up work, and/or started a family; (c) moved house and massively increased their mortgage. It's amazing what you can afford, when you're motivated.

So while taking a benevolent interest in the government's mishandling of the economy, why don't we get radical? "Action direct": get out of debt and save money for the challenges, and opportunities, to come.

My challenge: if you're in a steady job now, what percentage of your gross income could you save, if absolutely necessary? For if my hunch about deflation now, and inflation later, proves right, you could make an absolute killing in the next 10 years.

Ouroboros and the Left

"Ryan" makes reference in a comment on my previous post, to the "Gramscian left". I was too busy in the 70s, trying to get a degree, to look at yawn-inducing Marxist theory, but perhaps I was wrong. For following up this reference I find Wikipedia explaining Gramsci's notion of "cultural hegemony" and how to subvert it:

Gramsci therefore argued for a strategic distinction between a "war of position" and a "war of manoeuvre". The war of position is a culture war in which anti-capitalist elements seek to gain a dominant voice in mass media, mass organizations, and educational institutions to heighten class consciousness, teach revolutionary analysis and theory, and inspire revolutionary organization. Following the success of the war of position, communist leaders would be empowered to begin the war of manoeuvre, the actual insurrection against capitalism, with mass support.

Is it too much to say that in British schools at least, there has been a "war of position"? Hymns in assembly, RE, British history, the cane, the authority of the teacher - all in the bin. And all since, oh, I would say the mid-80s*. Now, the teacher is a kind of Lyons nippy, swiftly and attentively addressing every need of every child, and with no expectation of a tip.

And as the revolution approaches its moment of crisis, the Government (members of which have assisted with the first phase) has sealed itself into its Downing Street compound, like the East German rulers before their fall. Gordon Brown, formerly the student Rector of Edinburgh University, learned early how the power system had loopholes and having exploited them, is closing them. So the surrounding area is legally a protest-free zone and our new Stasi is set on harmless teenage student demonstrators.

Despite these efforts, and like Kronos, the Revolution may eat its children. Yet Zeus survived because Kronos was given a Rock to eat instead...

* after first flutterings with the William Tyndale affair (1974), Chris Searle's "Classrooms of Resistance"(1975) and other inputs.

Chicks up front!

In the 60s/70s, a fellow trainee teacher told me, the tactic at demos when the police arrived was to call "Chicks up front!"* and have the girls form a protective cordon for the male hairies. The assumption was that the police wouldn't beat up girls (not a safe bet in France, I think).

Now, in London, near the Mother of Parliaments, a 17-year-old girl can be arrested, charged, taken to a police station and regularly woken up at the low point of her circadian rhythm in order to tempt her to make a statement without the benefit of legal representation. All this, simply for carrying a placard. My country shames me.

Anybody reading, who has any influence with the powers that be, please communicate our shame, chagrin and anger.

*corroborated here - and either inspired by, or inspiring, the Viet Cong according to "DreadPirateRoberts" (see his April 30, 2008 5:04 pm comment here)

MSM: news suppression service

... But the draft documents reveal how close the [Northern] Rock was to a virtual wipe-out.
The Daily Mail first learned of the bank's secret plans in January but, after a late night call from Mr Darling, was begged not to publish.

(From this morning's Grumbler.)

Has the Press become an arm of Government?