“If you can keep your head when all about you are losing theirs…you’ll be a Man, my son.” (“if”: Kipling)
You could also be richer because now is time to realise that the next bull market is underway.
A stockbroker pal is a great chartist. He pours over graphs, yells out “look, a Head and Shoulders, wow, there’s the neckline and hells, bells, the support level is broken.” He then phones his clients and tells them to sell their stocks. Charting is, of course, complete twaddle. As a financial journalist once wrote: “The only thing a chart tells you is what the insiders already knew.”
So why am I certain that the next bull market is underway? Here are my six reasons.
- Because few others think so. The City of London is wrong about nearly everything so this is a useful indicator.
- The psychology is right. The years of excess (basically from the start of Tony Blair’s second term in 2002 to the collapse of Lehman Brothers in 2008) had to be followed by a similar period of austerity in order to restore value (that’s what is happening in Greece). That restoration of value process is almost complete.
- Interest rates are to remain low and in the last week some commentators have called for the Monetary Policy Committee to reduce the base rate to 0% to counter the threat of increased mortgage rates. Low interest rates will fuel the bull market.
- The US economy is picking up strongly as evidenced by the unexpected growth in new jobs (200,000 in February) and the drop in the overall unemployment rate to 8.3%.
- However the key indicator is the increasing numbers of articles in the personal financial press advocating shares as an alternative to low deposit rates. With the end of the tax year approaching brokers and IFAs are pushing ISAs for all their worth.
- The other main indicator is the likely reduction in the corporation tax rate. The Chancellor has already cut it from 28% to 25% and is said to be looking at 20%. This compares to 35% in the US, 33.3% in France and in Germany (allowing for social taxes) more than 30%. Ireland’s rates is 12.5% but their economy is burdened by the cost of their rescue. Low rates, high growth.
The bull market is starting to emerge. The selective buying of small company shares might turn you into a person of vision.