An imperfect market

FTSE 210911

Today's post is a little different from normal. I notice that I have not put up a chart of the FTSE for some time and today I rectify that. The reason I pay it little attention is that at present  its movements are pushed and pulled by the American markets (but I have to admit it has a very pretty channel). Because the UK market opens earlier than the US and closes earlier too the relationship is obscured. I watch the US market futures through the morning and in the early afternoon to get an idea where those markets will open. But I cannot make any sensible  guesses about the future  based on the UK market. It's definitely the dog's tail and the dog is wagging it.

The same rules apply once the UK market closes. Let's say the UK market closes strongly up and then the US markets suffer a fall in their afternoon (our evening). You can be reasonably sure that the UK market will open sharply down. Unless the futures market indicates a US recovery, in which case the UK market will be pulled up at the open.

 At the moment this tether is very strong indeed and it means that there is little point in watching the UK market for any sort of guidance.

I believe that the markets are being moved by what used to be called hot money. This time that hot money has been supplied by governments through quantitative easing and is in the hands of speculators who look exclusively at price movements and no deeper. The banks and institutions in whose trading rooms these speculators work have deep pockets. And to make things worse they have no fear of failure. If they fail they believe that governments will step in to pick up the pieces. Some may lose their jobs but what do they care they've already stuffed their boots with loot.
In this febrile atmosphere there is no attempt to move the markets in the direction of an equilibrium based on its real value. I think we can reasonably say that what we have a frighteningly imperfect market that has lost touch with reality.

You may have noticed that I have not mentioned shares since I started this blog. At present there is no point in looking at shares since the scenario that I have described above leaves no opportunity to search for shares that are undervalued and therefore should rise in price. For me that's the only point in buying shares . I know I'm good at finding undervalued ones. The present market is a free for all and it is impossible to calculate the odds on being right.

I have two choices: to stand back; or to join in the melee by trying to understand its tos and fros.  The latter is what I am trying to do. Today I'm lucky. Most days not.