The usual way to determine if a Bull Market is happening is to watch the headlines in the financial pages of the ‘Daily Mail’. When they proclaim “The Good Times are here”, this is a reliable sign that the next recession is about to begin. They are usually about two years too late.
The etymology of the terms ‘bull’ and bear’ markets is not clear. Some point to the fighting style of the animals: bulls charge with their horns up and bears swipe down with their paws. In the eighteenth century London had bearskin jobbers who sold before taking delivery of the skins hoping for the price to rise. The Bills of Exchange markets used the term ‘bulla’ meaning a contract where the counterparty was a ‘bearer’.
The markets know best and there is overwhelming evidence that the next bull market is well underway. The flotation of the Royal Mail in October 2013 was a clear sign although, with a pricing yield of around 6%, and an obvious under-valuation, the promoters were not certain about the market trend.
In the last week the most reliable of all the signs appeared. The announcement that the ‘Pets at Home’, £1.5 billion flotation would be completed at around 13/14 times earnings, told us all we needed to know. Even better, it was private equity money cashing in on a dazzling return on their original rescue investment. Rising price/earnings valuations are the clearest sign of a bull market. When they reach 25/30 times earnings, you are probably in Brazil.
A quick glance at the AIM new applications list reveals that there are eight new admissions in prospect. Now the speculators are climbing aboard. Luke Johnson is considering floating off Patisserie Valerie with a potential valuation of £150 million. Current earnings are £14m. SSP, with 2,000 cafes, restaurants and fast food outlets, and run by former WH Smith boss Kate Swann, have appointed advisers for a possible June float and hope to raise £450/500 million. Others named as possible market entrants include Poundland, DFS and Zoopla.
The cautious will point to the remarks of the Governor of the Bank of England and the Chancellor of the Exchequer in the past week questioning the reliability of the recovery data.
That’s more for political reasons. Recession is about the revaluation of money. That has been done over five painful years. The City has loads of money and is going to throw it at the equity markets.
The waiting is over: buy now and buy big. The bull market is charging towards you.