An All-Time High

So the S&P500, an oft-cited index of leading US stocks, is back at an all-time high. Stock indices all over the world are nudging at their own records. Over here, FTSE is back close to pre-crisis levels and motoring along quite nicely. Which all makes perfect sense, because after all, the world’s major economies are doing just fine, aren’t they?
What’s that you say?

The US may not be in the grip of a triple-dip recession but its growth over the last few years has hardly been stellar. And in the meantime, its debt has been downgraded and the two main political parties seem to be driving the country to the brink of fiscal Armageddon on a quarterly basis. Over here – well, over here we pretty much are in the grip of a triple-dip recession, our biggest export market is on the brink of implosion on a fortnightly basis, and when even the bankers are looking glum you know things can’t be going brilliantly. Corporate earnings are acceptable, better than expected, even, but not enough to justify these highs by themselves.
But it’s OK, because China will pull us out of it. China will go on selling us everything we need, at prices we can still afford because the Chinese currency has a great big boot on it keeping it down, and at the same time China will buy the stuff we want to sell it, thanks to its new enormous consumer society. And all the while it’ll carry on lending us the money we need to buy its exports and keep our countries and our companies off life support.
Except recent data seems to suggest that the Chinese economy is slowing down too, and amongst a growing number of analysts the big debate isn’t how much it’ll grow but whether it’s heading for a soft landing or a hard one. And whether it’s a soft landing or a hard one, when something the size of China is coming down you don’t want to be standing too close to the runway.

We seem to be in one of those bizarre periods where the stock market sees what it wants to. Better-than-expected data is seized upon as the green shoots of global recovery. Worse-than-expected data is ignored, treated as an aberration or challenged as inaccurate. Interest rates are low, fiscal policy is loose and doesn’t look like it’s planning on getting tighter any time soon. While conditions stay like this it’s so easy to ride the wave of artificially-generated optimism and buy, buy, buy.

Usually at this stage in a post I’ll offer some kind of counter-argument, something to appease anyone who might be frothing at the mouth at my daring to have an opinion. Because I am, if nothing else, a coward. But not this time. This time I’ll just make two more points, on gold, and on futures. Gold’s the traditional refuge for those who are afraid of everything else. Often, they’re right. In a bull market, where everyone’s confident that their stocks will just carry on performing, gold should trade at low prices. It isn’t.

And then there’s futures. In a traditional bull market, stock or index futures will be trading higher than their current (“spot”) prices. Because traders expect that in a market that’s going up, something worth a hundred now will be worth a hundred and change in a few months time. Right now the S&P futures for July and September are below today’s price. The FTSE futures for the same dates are well below today’s price.

All of which means that it’s not just me who looks at today’s prices and says that can’t be right. It’s the market, and the people who make the market. And those people might have made a few historic cock-ups in recent years but this time, you’d be wise to take their advice.


Liked this? Take a look at the opening chapter from the soon-to-be-published Without Due Care here.



  1. Well said, Sir. I’ll add my 2 troy ounces’ worth…
    China is buying gold at a frightening pace, mainly to hedge their exposure to 25% of the US national debt.
    And, with reference to stock prices, as Keynes once said (although somebody will probably snopes me on this): “The market can stay irrational longer than you can stay solvent”.

    1. I’m not saying I wrote this post with you in mind, but I did think you might comment. As for Snopes, doesn’t matter any more. Just superimpose the quote over and image of the table at Breton Woods and voila, history revised.

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