The big picture


This week the FTSE 100 index of London's blue-chip share prices soared through the 5,000 barrier. I don't know what these people in the City are on, but I'd like some. Perhaps they're all cheered by the 'Recession Over!' headlines in the newspapers, since the latest economic figures suggest a very slight positive growth after over a year of severe falls. And of course, companies are reporting better figures these days.

There are two sorts of market analysts, those who look at the big picture, and those who look at companies themselves. The latter tend to be more optimistic, more gung-ho for the companies they track. That's natural. But company figures only look better today because their reports over the last year have been disastrous. Their descent may be slowing, but they're still in much worse shape than they were. It looks OK because they've already fired everyone so don't have big wage bills to pay. They still have customers because they're running down their stockpiles of unsold stuff. But you can't operate like that for ever.

Nor is the big picture rosy. I don't trust growth figures, which comapre two sets of already-unreliable aggregates. Sure, £175bn of new 'quantitative easing' cash has got to do something to boost things. But it may be a doubly false boost. First, it's fine to print money if the problem is a shortage of it. But stubbornly high inflation figures suggest that there's still plenty still out there, helping to bid up prices. Second, what the Bank of England is doing is simply buy up government debt in exchange for this new cash. But that makes the government look like a much better risk than it really is. Sooner or later, the Bank will have to rein in again. And then the true shakiness of the government's finances will be obvious. Which ain't gonna help the stockmarket at all.