Tuesday, 5 February 2013

The market

Nowadays we appear to be lead by markets. Are they right in their current optimism or do they just want to rise for the sake of profits?

The two reasons I can see for optimism are the fundamental drivers of the UK economy look much stronger than at any time since 2007. Housing construction, which has been the biggest obstacle to economic recovery since 2009, is finally rebounding. House prices are falling however. Employment is slowly but steadily increasing at the same time more people are signing-on, this contradiction needs to be addressed. Credit conditions are gradually returning to normal, and cutbacks in government employment, the most powerful element in economic recovery after housing, are ending as state and local government revenues stabilise.

A second reason for optimism is the improvement in global economic and political conditions, especially the lifting of uncertainties about a break up of the Euro zone and the leadership transition in China. These fears weighed heavily on financial and business confidence for most of last year, however China is growing strongly and is politically stable, at least for the next few years. In Europe, the currency crisis may not have been resolved, but it has been frozen, at least until after Germany’s election in September. As a result, the fears of political shocks that until recently obsessed financial markets have diminished dramatically.

So is it fair that the markets are starting to rise?

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