A new Dow record – rational exuberance or just plain wishful thinking – MoneyWeek

A new Dow record – rational exuberance or just plain wishful thinking – MoneyWeek

A new Dow record – rational exuberance or just plain wishful thinking – MoneyWeek

Andjustlikethat,inthewaveofananalyst’spen,thesubprimeproblemshavevanished。

LikeaBBCexecutiveconfrontedwithdoctoredfootageoftheQueen,thismarketbelievesexactlywhatitwantstobelieve,regardlessofevidencetothecontrary。

‘Analysts’werestilltippingtechstockswellaftertheyfellofftheirperchinMarch2000。

‘Experts’thoughtUShousepriceswouldneverfall。

Andifyougobackfarenough,weimaginetherewereafewgeniuseswhogenuinelybelievedthattulipswouldnever,evergooutoffashion…

TheDowJonesreboundedfromitsrecentsubprime-inducedtroublesyesterday,butwereckonthemarketwillbewobblyforquitesometimetocome。

Themoodhasswungtowildoptimismonceagain,andwishfulthinkingthatproblemsinthemortgagemarketwilljustgoaway。

Theeconomywillbejustfine,despitethedevastationbeingwroughtinthevalueoftheoneassetthathasbeenproppingupUSconsumerspendingsincetheturnofthecenturyhousing。

There’llbemanymoremoodswingstocomeexpectarapidplungeintodepressionthenexttimesomebadnewsonthesubprimemarketcomesout。

AndoverhereintheUK,weshouldbekeepingaverycloseeyeontheUSsubprimeproblemsbecausetheycouldcrosstheAtlanticatanymoment。

KensingtonMortgages,oneofthemorehigh-profileUKsubprimelenders,warnedthatarrearsratescouldjumpby20%inthenext12months。

Theproportionofthecompany’sbookinarrearsof90daysormorefellto9。

4%from9。

6%inthefirsthalf,butthegroupexpectsittorisetobetween10%and12%。

Intruth,thegroupdoesn’tseemterriblyworried。

Infact,themainproblemKensingtonishaving,isthatthere’stoomuchcompetitionoutthere。

ChiefexecutiveAlisonHutchinsonsaid:“Therearenow54operatorsinamarketinwhichtherewerejust24ayearago。

”Newbusiness,profits,profitmarginsandoutstandingmortgagesallfellsharplyasbusinessfeelsthesqueeze。

Withstatisticslikethat,it’snosurprisethattheBankofEnglandhasfounditdifficulttoreininthehousingmarket。

YouhavetheBanktighteningononehand,andthesubprimelenderscompetingevermoreaggressivelyontheother。

ThisiswhatdrovetheUSsubprimeboom。

Allthesubprimelenderscaredaboutwasgettingmorebusinessinthedoortheydidn’tactuallycarewhotheywerewritingloansfor,orhowcreditworthytheywere。

Ofcourse,theycarenowthatlendersaregoingtothewallintheirdroves,butit’sfartoolate。

Thesameishappeninghere。

TheFinancialServicesAuthorityrecentlystartedtogetworriedaboutthesubprimesectorandfoundthatbadpracticewasrife。

Thisisexactlythesortofthingthatcreatesmis-sellingscandalsafterthecrashcomes,andpeoplearestaggeringabout,clutchingtheirfinancialwarwoundsandlookingforsomeonetoblame。

Andwitharoundtwomillionmortgagessettoresettomuchhigherlevelsinthenext18months,troubleisonthehorizon。

ThemostrecentsurveyfromtheRoyalInstitutionofCharteredSurveyorssuggestedthathousepricesaregrowingattheirslowestratein18months。

Ricshasprovedadecentindicatorofturningpointsinthemarketbeforewedon’tdoubtthatit’lldosoagain。

Bytheway,ifyou’veeverwonderedwhattheplethoraofpropertysurveysoutthereactuallymeasure,youshouldreadthisweek’sissueofMoneyWeek,outtoday。

RuthJacksontakesalookatthevarioushousingmarketindices,whattheymean,andhowreliabletheyareit’llcertainlyhelpyoumakesenseofhownewspaperscanbetalkingofsoaringpricesoneweek,thenproclaimingahousingbustthenext。

Ifyourenotalreadyasubscriber,youcansignupforathree-weekfreetrialofthemagazine,justbyclickinghere:Signupforathree-weekfreetrialofMoneyWeek。

Turningtothewidermarkets…

InLondon,theFTSE100endedtheday62pointshigher,at6,697,asRioTinto’sbidforaluminiumgiantAlcanandtherisingcopperpricesenttheminingsectorsoaring。

VedantaandAntofagastabothgained6%,whileXstrataclimbed5%。

ElsewhereinEurope,theParisCAC-40closed101pointshigher,at6,103,whilsttheFrankfurtDAX-30gained73pointstocloseat8,126。

AcrosstheAtlantic,USstocksgainedstronglyamidsolidsalesforecastsfromWal-MartandTarget。

TheDowJoneshitarecordhigh,adding283pointstoendthedayat13,577。

TheNasdaqwas12pointshigher,at2,651。

AndtheSP500closedup8pointsat1,518。

InAsia,JapanesestocksendedthesessionhigherastheBankofJapankeptratesonhold。

TheleadingNikkei-225indexadded63pointstocloseat18,112。

InHongKong,theHangSenghadhitanewrecordhightoday,havingrisenashighas290pointsto22,897。

Crudeoilhadclimbedto$72。

83whilstBrentspotwasat$76。

77。

Spotgoldwasat$662。

80thismorning,comparedwith$660。

30inNewYorklatelastnight。

Andsilverhadcreptupto$12。

89。

Foramorein-depthgoldmarketreport,seeoursectiononinvestingingold。

Inthecurrencymarkets,thepoundwastradingaround2。

03againstthedollarthismorning。

Meanwhile,thepoundwasat1。

4730andthedollarwasat0。

7257againsttheeuro。

Andthedollarwasat122。

4againsttheJapaneseyen。

Andlatertoday,theDutchSupremeCourtwillshedlightonwhoismostlikelytowinthebattleforABNAmro,thebiggesttakeoverinbankinghistory。

RoyalBankofScotlandandBarclaysaregoinghead-to-headoverthegroup。

Today’sdecisiononwhethertoblockthesaleofABN’sUSunitLaSalletoBankofAmerica,willswingtheoddsinfavourofoneortheother,withRBOShopingforablock。

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