Harvey Jones of Motley Fool wrote an article yesterday in which he talked about “the excellent book Monkey with a Pin“. He mentioned my personal view that the FTSE will probably go below 4000 at some point in the next few years. In the article he was pointing out though that the FTSE currently was going in the opposite direction and rallying (bar yesterday’s 2% drop). Given this, I thought I’d clarify my position. Here is my reply to him.
Harvey – I thought I’d pick up on your interpretation of what I said about the FTSE hitting 4000 at some point in the next few years. I still hold by that but I never said it would happen now.
What I didn’t write in my post about that (http://www.iii.co.uk/articles/36243/why-i%E2%80%99ll-buy-40-random-stocks-when-ftse-100-hits-4000) was that I had a personal belief that the FTSE would go higher in the short term.
If you look at the S&P over the last 10-15 years, you’ll see it has topped out at around 1500 twice before (in 2000 and 2007). There is a certain mathematical symmetry that suggests to me it wants to repeat this at some point (in the next year) and this is the “unpredicted rally” you refer to. What will cause the final push? I suspect it will be QE3 in the US.
The FTSE will get dragged up by that event too. Personally, I think the FTSE won’t make back its previous highs but will probably end up around 6200-6300.
However after that event, all world indices will decline – possibly when it becomes apparent how useless bouts of QE really are, possibly after China implodes, or more likely when the euro starts to break up. I know not why, nor care, but I just have a hunch it is going to happen. It is after that that the FTSE will put in a low sub 4000 (not in the immediate future).
Then will be the point at which investors can make the biggest killing. So keep some of that powder dry. Also don’t lose those darts, as you’ll need them then to pick your random shares amongst the tatters that will follow such a decline.