Housing Market v FTSE 100 Performance
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Trading Features / Strategies from Simon Denham of Capital Spreads.
So, it seems to be adieu to one of the big three auto makers State side. It has been educational, to say the least, that it has taken so long for the axe to fall in a nation that practically worships capitalism.
The Big Three seem to have been losing money for most of my working life (with the occasional blip into positive territory) and the long slow crash will unfortunately take many companies down with it.
In reality President Elect Obama would probably prefer to get this out of the way before he takes up the reins of office as all the problems can then be safely blamed on the previous administration.
Today is the last serious trading day of the year as the next two weeks tend to be very, very short on liquidity and occasionally long on volatility (as small volumes push markets in unexpected directions).
In the UK there is now another variable to be taken into consideration and this is the potential for an election early in the New Year. Politicians are understandably nervous over their jobs as most of them appear to be almost unemployable outside of the political arena.
With a big surplus of Labour backbenchers to be considered, Gordon Brown may decide that the prospects of re-election now will be considerably greater than in a year or so.
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Due to the way that the seats are made up the Tory party need some 6-7% more votes than Labour merely to win more seats in Parliament let alone achieve a working majority. The current administration may consider the prospect of fighting on the perceived strength of the Prime Minister in tough times when compared to David Cameron (who was really picked to fight against ‘Our Tony’) will make for their best chance to win.
The ‘men in grey suits’ often described as the Tory kingmakers may decide, given time, that a more aggressive performer such as William Hague would stand a better chance of victory.
The prospect of another five years of this leadership might not be taken well by investors given that the FTSE 100 has actually lost value in the eleven years since New Labour came to power. And this is even though much of it has been replaced, in that time, by higher valued foreign components.
For all of the current angst over housing valuations the fall in bricks and mortar (even in the short term) is far, far, less than equities and over a ten year time horizon the differential is monumental.
The perceived wisdom that, in the long run, equities will always be the best performing sector is taking a bit of a hammering at the moment. Housing is still almost three times the price today as in 1997. For those who claim that property cannot fall too far due to the lack of supply versus demand the absolute value versus other asset classes might be educational. Even if housing fell 50% from where we are now it would still have performed credibly against equities.
The above comments do not constitute investment advice and neither Capital Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
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'Housing Market v FTSE 100 Performance' edited by DB, updated 12-Dec-08
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