Socialist Economic Bulletin has, for strict economic reasons, no views on the short term movement of share prices - theoretically it depends on too many variables. SEB only analyses that US assets are overvalued in real terms compared to some other categories of assets and therefore, over the long term, they will adjust relatively downwards (which can occur via dollar devaluation, falls in nominal dollar prices, inflation or other combinations of processes). For what follows it is also necessary to remember that SEB considers the Financial Times the most accurate mainline newspaper in the country - all sorts of waffle, and ideology, can be tolerated regarding politics but money is a serious thing and capitalism demands accurate information on it.
However, SEB could not help smiling at the following piece of 'optimism' that appeared on the front page of the FT online on 14 October: 'Asia staged a historic rally as stock markets responded to a €1,873bn ($2,546bn) pledge by European governments to shore up their financial sector and the US prepared to unveil its own comprehensive rescue plan on Tuesday. It was the best day for US stock markets since the rebound following the great crash of 1929.'
Anyone who considers that it is a sign of optimism to make a comparison to the stock rebound after the 1929 crash either has a strange sense of humour or hasn't quite studied history enough.
In order to illustrate the point this is how a graph of recent movements in the Dow Jones Industrial Average would have looked on 14 April 1930.
The pattern is clear. There had evidently been a severe fall in 1929. However following this the market was recovering in a sustained way, with a rise that had been going on for five months.
Except that that this is what happened next - it is the view of the same markets as taken on 8 July 1932.
The 'rally' following 1929 was, in fact, the most famous 'dead cat bounce' in history.
Markets, for strict theoretical reasons, never fall or rise in a straight line, Precisely because there are so many variables in the system the 'noise', that is elements which are not directly related to the main trend and which produce short term fluctuations, are always moving around and in the short term can, and do, drown out the 'signal' - that is the underlying trend.
It is, therefore, for theoretical reasons quite impossible to deduce anything regarding short term market movements from fundamental trends. The FT's note of 'optimism' regarding market movements on 13 October is as pointless as would be an attempt from SEB to claim 'pessimism' because of the market falls on 10 October. Only the long term trend will show the 'signal', that is the underlying forces operating, amid the 'noise' which results from the short term fluctuations.
Nevertheless the FT might have chosen a better historical analogy to indicate its optimism!