Putting the Lure in Failure

Denial is, as they say, not just a river in Africa. People are always in denial about all kinds of things they wish weren’t true: their partner’s not cheating, Sue Perkins is a comedian, capitalism isn’t fair and, most pertinent to this article, the UK stock market and economy aren’t failing. They are and there’s loads of evidence for it in the FTSE 100.

Randgold Resources Ltd. Wow what a pathetic chart – in a good way. Triple bottom at the 36 level. This is so going to crash when it falls through that support. There are so many things I like about this chart: the fake out from the congestion area that we’re still in; the support at around 50% of the ATH, a doubly significant level to fall through; especially because of the lack of support below it. Any support there would be back 6 or 7 years ago at least. That can’t really be considered relevant now, so there is basically no support at all. So there’s one for the short watchlist (if you’re not already enjoying the party).

OK it has to be said that the FTSE 100 is somewhat more bullet proof than say the FT30. The latter is keeping its constituents unless they go bankrupt or cease to exist in their current form. By contrast, because it’s based on the highest market caps, the FTSE 100 keeps throwing out the failures and replacing them with those on the rise. Fine, if there are any. There are a few stars in the LSE but not enough to stop the rot here.

Retail must be suffering if Burberry are failing. And that’s what their chart says is happening. Failure at the £14 level marks the end of a fairly spectacular run for them. This chart does have some more recent support and £10 looks like a possible level.

The news today that a survey by the CIPD (Chartered Institute of Personnel and Development) reveals a fifth of UK companies are in ‘survival mode’, not investing in the future, adds weight to my argument that things are totally screwed. If interest rates go up that’ll put paid to lots of UK zombie companies that are over-leveraged, but if the BoE cuts rates, as some economists are suggesting, then the effect will be a stronger pound which is hardly going to help export markets is it? It’s the same outcome either way. Actually worse if they do cut rates as the zombie companies will borrow more and fail more spectacularly when they do fail.

Higher commodity prices would push the FTSE 100 up, given it’s full of miners, but it can’t pay the bill for the Chancellor’s Living Wage, nor deleverage zombie companies. The only possible thing that could be seen as something like Roosevelt’s New Deal of 1933 is the million homes the government has promised to build over the next 5 years. The construction sector would benefit, and banks as they’d be able to maintain lending with new loans. That’s really just reshaping a bubble to make it star shaped though. It’s not a star and it’s going to burst sooner or later. Remember the disparity between Halifax HPI and Land Registry figures that I wrote about in the first week of September? That’ll be a chart I’ll keep looking at over the coming months.