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Big markets move approaching, Update on US & UK Outlook, Barrat Homes developments

BIG MOVE ON THE MARKETS APPROACHING, An update on the outlook for the UK and US, Still too frightened to short Barratt Developments?

BIG MOVE ON THE MARKETS APPROACHING

It might have escaped the notice of some CFD traders that despite all that is going on in the economy, with a busy corporate reporting season and plenty of excitement in commodities; most equity markets have been extremely lacklustre in recent weeks.  The average true range, an excellent measure of volatility, has fallen to its lowest levels in the last six months on many indices, and though it is not at the levels seen in much of 2005 and 2006, it reflects much calmer conditions.

We believe that will soon change as the FTSE 100 index, the Dow Jones & the S&P 500 are all at or close to significant areas of trend change in the past, and as we have seen tops and bottoms around here previously, they could paradoxically be both potential support and resistance.  Whilst this is clearly of no use in predictive terms, it is the action from here that will be important as the markets coil up on falling volatility and volume.  They are likely to explode one way or the other very soon, as these patterns do not usually last for long.

An update on the outlook for the UK and US

Regular readers of this report will know our fundamental macroeconomic views on western economies, specifically the US and UK, and to some extent our feelings have not changed in the last year.  We still see a consumer-led recession happening as house prices continue to fall and wage rises do not match fiat monetary policy-inspired inflation which continues to rage at low double digit rates. 

The big conundrum though is what sort of spillover effect this will have in the rest of Europe and the BRIC countries, and this is where commentators are not clear in their analysis.  Neither are we for that matter, and the best course is to watch the stats as they come in, as each month at the moment brings conflicting evidence from France, Germany and China.  Do not
forget how much influence all these and the US now have on our dear old economy (around 40% plus of FTSE earnings and growing) and you therefore should watch the overall index price and volume, which has given no short term signals recently.  The headline indices go either way from here and you need to follow our daily analysis to make sure you are on board when it happens.

Still too frightened to short Barratt Developments?

Last week we took a look at Persimmon’s figures and outlook, which confirmed dire conditions in the UK house market, and now we have the first year-on-year falls in prices.  Those affected by the last recession may recall that in some areas prices peaked in 1989, and fell for around five years before bottoming out for another few years.  What was different then was that some regions had not had a boom and just went sideways for a decade, whereas others (East Anglia comes to mind) saw price falls of around 30% and real falls of almost 50% top to bottom before recovering.

This time round everywhere and every type of dwelling has boomed, from wooden shacks on the beach as big as a horsebox valued at £100000, two bedroom rabbit hutches in old mills in Manchester and Leeds at prices that would in normal times be higher than the most expensive properties in surrounding towns, and the £1m-plus bijou penthouses in Central London with a view of Starbucks out of one window and a kebab shop/railway line/council block from the other.  It just defies logic, but then again so did dotcoms, tulips and plenty more bubbles.

Ten, twenty and thirty years ago average house prices were between three and four times average wages.  Your esteemed writer bought his first property up north in 1994 at exactly three times salary, the maximum that could be borrowed, for £75,000 – and that was a 3 bed detached.  Those days of austere lending look to be back, and the falls could be a lot quicker this time round with the speed of news flow, so a quick 50% fall over say three years might get things back to normal.  That is why Barratt Developments, which is highly leveraged and thus highly exposed to falling prices, was again mentioned last week as a sell.  It has fallen from 295p to 265p in the last five sessions, and there could still be plenty more to come.

 CONTRACTS FOR DIFFERENCE (CFD) TRADES TO WATCH NEXT WEEK