London Dinosaur Stock Market Is Going Extinct But Still Has Meat On It

The U.K. market is a lame duck. While Brexit promised revolution and the freedom to swashbuckle, it didn’t deliver, so, now cut off from the continent, the U.K. market has shrunk to become smaller than Paris. How the mighty have fallen. That makes for an interesting arb between the overpriced U.K. stock market stock and the now bigger but comparatively underpriced Euronext. The London Stock Exchange has gone from 400p to 8,000p in a decade so I suppose it can’t help but be vulnerable to a fall, especially as it ejected its equity intestines like a sea-squid, to buy a chunk of Reuters that couldn’t get arrested when it was once listed itself. Euronext meanwhile has a 17 P/E versus an 80 P/E at the atrophying London Exchange.

I wouldn’t touch that trade personally because when it comes to high valuations there is no obvious sense to it. You only have to try and find solid financial information for companies to spot that for stocks, hot air is in vast supply while hard info is often not available or regarded.

Sometimes I think a simple non-stock pick tip is worth a whole lot more than a stock tip and yet in general no one takes notice of that. People want names not techniques, they want a fish not a lesson in how to fish. I’ve written a lot of articles for Forbes for 20 years and called all the major tips and bottoms in stocks and crypto making few mistakes.

No one cares because investing to many is just entertainment, and they lose money and ultimately it’s just part of their narrative of their life. Occasionally I get a note saying you saved me from financial disaster and that feels great to me, but the summary is that people are in the market to have a journey not to make money.

Seems weird, but why else would there be so many high risk instruments available designed from the ground up to take your money and send it to the ‘house?’

So here is a non-share tip, tip.

If you want to know what’s going on in the U.K. stock market, don’t look at the FTSE 100, look at the FTSE SMX (small-cap index.)

Take a look at the FTSE 100:

Now look at the FTSE Small-cap index:

Or better still the small-cap index without the trust funds:

Doesn’t look different until you put them side by side:

They are different but compare that with the small cap and the FTSE 100:

The FTSE is full of noise and distortion.

That is what just happened and the small-cap gives you a view of how things went while the arbed to death FTSE 100 is noisy and lacking in as much signal.

The FTSE small-cap trends way more:

It reveals the real trend while the FTSE 100 is plagued by the effects of being a means to an end for many other financial transactions that need hedging.

The FTSE 100 is stripped by financial predators of its profits and while there is a lot to be made there, this predation covers the trend because eating the trend is how it is stripped of value. The small caps are out of range of these huge predators so it tells you more clearly if the market is a bull or bear which ultimately is all you need to know.

What you need to know now is the FTSE is still in a steep bear.

No point being long when the direction is down.

When the trend reverses you’ll know and there will be meat on the dinosaurs bones for sure.