With the problems occuring in the capital markets of the world will there be a flight of capital from the mature markets to the emerging markets ?
Is this inevitable ?
Will investors walk,
Away from New York.
Will they abandon,
The City of London ?
Sunday, 30 November 2008
Saturday, 29 November 2008
Stock Exchanges : Supply and Demand
Prices are a reflection of supply and demand
If demand is greater than supply prices rise and conversely if supply is greater than demand prices fall
Where stock exchanges are concerned the mature stock exchanges like New York and London had a high demand on stocks as these exchanges were mature , had good quality stocks which produced growth and dividends
On the other hand , the emerging markets were immature and although most of them had produced capital growth , dividend income was lacking
However , the emerging markets are slowly but surely maturing and unfortunatley the mature markets have been hit by a credibilty issue brought upon by the way in which the credit crisis has unfolded ( lack of insight on the part of the big players and subsequent collapse of these players) and the way in which it has been handled( market forces been interfered with by poiticians )
If market forces are not allowed to play themselves out , then the credibility of the market is called into question
Now the emerging markets appear a much better proposition
Hence, supply has increased
Demand will now be distributed over this wider supply
Prices will come down .
If demand is greater than supply prices rise and conversely if supply is greater than demand prices fall
Where stock exchanges are concerned the mature stock exchanges like New York and London had a high demand on stocks as these exchanges were mature , had good quality stocks which produced growth and dividends
On the other hand , the emerging markets were immature and although most of them had produced capital growth , dividend income was lacking
However , the emerging markets are slowly but surely maturing and unfortunatley the mature markets have been hit by a credibilty issue brought upon by the way in which the credit crisis has unfolded ( lack of insight on the part of the big players and subsequent collapse of these players) and the way in which it has been handled( market forces been interfered with by poiticians )
If market forces are not allowed to play themselves out , then the credibility of the market is called into question
Now the emerging markets appear a much better proposition
Hence, supply has increased
Demand will now be distributed over this wider supply
Prices will come down .
Tuesday, 25 November 2008
Save or Spend
On a personal level if one is in financial difficulty , common sense would dictate that one should curtail spending and limit spending to the bare essentials .
If a country is in financial difficulty , it would seem right to follow the same principle
However , the USA and EU seem to think that the best way to tackle the problem is to throw caution to the wind , borrow money and spend it and encourage irresponsible spending by the people as well .
This does not seem to be a sensible proposition
If a country is in financial difficulty , it would seem right to follow the same principle
However , the USA and EU seem to think that the best way to tackle the problem is to throw caution to the wind , borrow money and spend it and encourage irresponsible spending by the people as well .
This does not seem to be a sensible proposition
Monday, 24 November 2008
VAT down 2.5% FTSE up 10%
The UK chancellor stated that VAT in the UK would be reduced by 2.5%
The financial markets responded by an approximatley 10 % increase in the FTSE
Does this make sense ?
Does a 2.5% reduction in VAT mean that the British public are going to rush out and start spending money and thereby pull the economy out of recession ?
Have the fundamental problems in the economy been corrected ?
The answer is no to both questions
The chancellor also stated that the estimate for GDP performance next year would be a contraction of approximately 1.25 %
He also stated that government borrowing is going to increase and subsequent tax increases will be required
None of these statements should give a feeling of optimism
Then why did investors rush in to buy shares ?
This is pure speculation
Nothing has changed
It is only a politician's statement about a change in taxation that will probably not have a significant impact
The movement of the market over the coming period should show us if the speculators were right to rush in or whether they should have had a little patience
The financial markets responded by an approximatley 10 % increase in the FTSE
Does this make sense ?
Does a 2.5% reduction in VAT mean that the British public are going to rush out and start spending money and thereby pull the economy out of recession ?
Have the fundamental problems in the economy been corrected ?
The answer is no to both questions
The chancellor also stated that the estimate for GDP performance next year would be a contraction of approximately 1.25 %
He also stated that government borrowing is going to increase and subsequent tax increases will be required
None of these statements should give a feeling of optimism
Then why did investors rush in to buy shares ?
This is pure speculation
Nothing has changed
It is only a politician's statement about a change in taxation that will probably not have a significant impact
The movement of the market over the coming period should show us if the speculators were right to rush in or whether they should have had a little patience
Population Growth : Bane or Boon ?
Is growth in the population of a country a bane or a boon to the economy ?
It was thought that large increases in population would increase demand to such an extent that it would outstrip supply and this would result in economic hardship. ( Malthusian catastrophe http://en.wikipedia.org/wiki/Malthusian_catastrophe)
In the 1960 s and 1970s countries like India and China made great efforts to try and control their populations believing that this was one of their major problems.
However , with economic liberalisation , their economies have begun to grow at an exponential rate and now they find that their large populations are a great attraction to foreign investors in view of the large market for goods that this presents .
In contrast in Western Europe where populations have remained static or shrunk , the economies appear to be in decline . Most european manufacturers in particular and service indutries as well are looking to establish in China and India to take advantage of these huge developing markets .
The bottom line appears to be an increase in population is a boon rather than a bane to the economy.
It was thought that large increases in population would increase demand to such an extent that it would outstrip supply and this would result in economic hardship. ( Malthusian catastrophe http://en.wikipedia.org/wiki/Malthusian_catastrophe)
In the 1960 s and 1970s countries like India and China made great efforts to try and control their populations believing that this was one of their major problems.
However , with economic liberalisation , their economies have begun to grow at an exponential rate and now they find that their large populations are a great attraction to foreign investors in view of the large market for goods that this presents .
In contrast in Western Europe where populations have remained static or shrunk , the economies appear to be in decline . Most european manufacturers in particular and service indutries as well are looking to establish in China and India to take advantage of these huge developing markets .
The bottom line appears to be an increase in population is a boon rather than a bane to the economy.
Sunday, 23 November 2008
Shanghai , Mumbai , Dubai , Goodbye
I saw a television program where a financial expert was being interviewed. He was asked what the prospects were for those who lost their jobs in investment banking in New York and London. His reply was, " As the saying goes , it is Shanghai , Mumbai , Dubai or Goodbye !"
Although the statement was made with tongue in cheek, the message appeared to be,"Look to the emerging markets "
This is in keeping with my thoughts expressed in my previous post of how the emerging markets will attract investors and the attraction will be heightened by the collapsing mature markets.
Although the statement was made with tongue in cheek, the message appeared to be,"Look to the emerging markets "
This is in keeping with my thoughts expressed in my previous post of how the emerging markets will attract investors and the attraction will be heightened by the collapsing mature markets.
FTSE 100
We were speaking to some students about the financial situation a few months ago. One of the students had been a Financial Services Advisor prior to entering university.
I asked him whether he thought that the FTSE would drop to 3250 ( It was about 5,600 at the time ). He said that would never occur and that soon it would begin to climb again as this was a temporary phenomenon .
I said that he should not be so sure as the FTSE had been at those levels just a few years ago. I told him to follow the market and see what happens.
Well at the moment the FTSE 3780
Will it go down to 3250 ?
Will it go down even further
The companies that make up the index do not seem to be doing well at the moment ( especially the banks) and the outlook for them does not appear to be bright .
In addition to this the weakening pound too would deter investment in the UK.
To compound this there are the so-called emerging markets with their growth and potential for further growth which makes them very attractive propositions .
Would the discerning investor plough his money into the UK or USA where the markets appear to be in free fall or invest in the emerging markets such as India and China where prospects appear to be much brighter
The answer is most likley the latter
I asked him whether he thought that the FTSE would drop to 3250 ( It was about 5,600 at the time ). He said that would never occur and that soon it would begin to climb again as this was a temporary phenomenon .
I said that he should not be so sure as the FTSE had been at those levels just a few years ago. I told him to follow the market and see what happens.
Well at the moment the FTSE 3780
Will it go down to 3250 ?
Will it go down even further
The companies that make up the index do not seem to be doing well at the moment ( especially the banks) and the outlook for them does not appear to be bright .
In addition to this the weakening pound too would deter investment in the UK.
To compound this there are the so-called emerging markets with their growth and potential for further growth which makes them very attractive propositions .
Would the discerning investor plough his money into the UK or USA where the markets appear to be in free fall or invest in the emerging markets such as India and China where prospects appear to be much brighter
The answer is most likley the latter
Supply and Demand
As demand for a commodity increases , supply will decrease and thereby prices will rise . If this persists prices will inflate in an ever increasing , never ending fashion.
But what is the reality ?
As supply decreases and prices rise , people with ingenuity seek to increase output to benefit from the increased prices.
As production and supply increase , supply overshoots demand and prices drop .
Think of some common items like computers and mobile phones .
Compare the prices now to what they cost when they initially became available .
When this occurs the suppliers are in a difficult situation and only the best producers survive.
This process is inevitable and one should be careful not to invest in me-too or copycat producers who are joining in blowing up a bubble that is bound to burst.
But what is the reality ?
As supply decreases and prices rise , people with ingenuity seek to increase output to benefit from the increased prices.
As production and supply increase , supply overshoots demand and prices drop .
Think of some common items like computers and mobile phones .
Compare the prices now to what they cost when they initially became available .
When this occurs the suppliers are in a difficult situation and only the best producers survive.
This process is inevitable and one should be careful not to invest in me-too or copycat producers who are joining in blowing up a bubble that is bound to burst.
Introduction
With the capital markets in turmoil and so many opinions being voiced regarding the causes of this , we thought we will add our opinion as well
Subscribe to:
Posts (Atom)