7th August 09 - The sense of Footsie

We have five senses (thought it’s the sixth that really matters) and in relation to the stock market performance of the top 100 UK companies since the summer of 07, it has become second nature to watch the falling graph, touch the empty money box, smell that carnage and taste the bitterness. Is now the time to listen?

Anything that has fallen by 47%, as has been the case for the FTSE100 between the middle of 07 and the Easter of 09, is by definition at a low ebb. Any rise from a low point will, in percentage terms, have a magnified edge relative to the zenith. Even so, a rise of 8.5% in one month (July 09) is worth listening to. And I do mean listen. The essential point about the stock market is that it is taking the position as at today and assessing the future. There are technical factors that give skew and bias to specific shares at any time but over 100 big businesses one can expect a smoothing out.

Putting the pretty pictures and the sentiment aside, is the big market saying something to us that we investors ought to be heeding? The answer is yes. Big business has been cutting costs, and cutting in a big way. Big business is global in reach and corporate feelings are pretty much numb. Chinese gentlemen can be seen sipping Johnnie Walker scotch and Chinese ladies like to parade their Burberry handbag. Most importantly, low share prices of big business mean yield and yield means income that deposit accounts do not pay.

If you are listening to what the market is saying, you might think we are at the start of a new bull run. You would be correct.

Pearl of the week

"I wish that, before I was 50, I had known the difference between net and gross profit." - Sir Richard Branson.

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