Zak Mir on the FTSE 100: New High, The 15 Year Wait Is Over

I have to admit that the occasion of the first new FTSE 100 record close in 15 years is one which is accompanied by mixed feelings. After all, bulls could argue quite successfully that the moment when 6,930 was broken after the end of 1999 could have been early in 2000, while the dotcom bubble was still inflating.

Other near miss opportunities came in 2007, just before the financial crisis, or perhaps the most unlikely, last year just before the Scottish referendum. But it may turn out to be the case that the actual breakout this week was the most unexpected of the lot. After all, the bears had the Grexit on their side, the lay of the land is also in favour of rising interest rates, and we are in a deflation / low growth nightmare.

So how has the UK index managed to defy the pessimists?

From a trading perspective, one which is a little more than cynical, the explanation may be that the fundamental bear trap of Greece has been the trigger for the technical breakout. Interestingly enough, the biggest losses for the UK index in the recent past were in October and then December. They may have been mixed in a little with the fear of Ebola, and the Russia / Ukraine crisis, but for this market it was the halving of the crude oil price which was the real reason for investors to press the sell button. Indeed, it is the heavy resources composition of this index which has perennially been a downer for the leading UK stocks index, especially as compared to U.S. counterparts such as the Dow.

But if we step back from the gloom and doom of the autumn for the FTSE 100, it may be worth remembering that even though the financial media appeared keen to portray the collapse for crude oil as something of a calamity, it was and is as David Lenigas described in the last ZaksTradingCafe in January, effectively a large tax cut. This, even if some of the benefit is kept by the Exchequer, could lead to higher consumer spending and a “feel good” factor going into the May general election.

Against such a benign backdrop the rules of politics dictate that the advantage will be with the incumbent Coalition – perhaps not with so many Lib Dems. In fact, it may mean that the Conservatives get the outright majority they should have managed in the wake of Gordon Brown’s demise in 2010. This does of course presume that Labour are not able to pull a rabbit out of the hat – or a new leader in the interim. However, even though the housing market could be something of a punt between now and the result, it would appear that unless there is a serious and sudden wobble with foreign investors running for the door at the same time, the economic backdrop to the stock market being near 7,000 is relative sound.

The main argument that the bulls have had and continue to have is that with interest rates so low there is no serious alternative in terms of where to park your cash apart from the stock market. Even if the Bank of England delivers a surprise rise from the summer onwards, this is likely to be the case for quite some time, with speculators eventually deciding that after 15 years it may be worth regarding the FTSE 100 as a sell into strength up to its 1999 high.