Is that a floor I see before me?

After taking a nasty wobble while I was out of the country, stock markets have settled down again since my return. Readers will be pleased to know that I am staying put for a while.

Not that I expect even my presence to send shares sharply higher. Despite the rise of nearly 30% since early March and a recent run of nearly 9% giving the London market momentum, I simply cannot see any justification for much of a push above 4,500 points on the FTSE 100 index. There is too much bad news about.

Stock markets do admittedly tend to look some distance ahead and we are now factoring in recovery next year. Indeed, latest output figures from China suggest that recovery is already well underway there with GDP up around 8% on last year and growing.

However, with consumerism still dampened by the political system there, that is as likely to lead to more Chinese goods flooding the world than for a boost to be given to world economies. Any signs that the recession will continue for longer elsewhere could soon put the skids under shares again.

For now, 4,100 points seems to have been established as a floor. While upward momentum will be hard to maintain, I believe that the fears of a further crash are receding rapidly and the market may well continue its sideways pattern seen since last October.

We have managed to absorb several dire monthly government borrowing figures, the latest this week being a June deficit of a cool £13 billion. Horrendous though that was, at double the level of June last year, the shortfall was expected to be up to £3 billion worse with tax receipts down and social security payments up.

Total outstanding government debt in the UK has risen to a record £799 billion, equal to more than half our total annual output and we all know it is going to get much worse until the government can start cashing in its Royal Bank of Scotland and Lloyds Banking Group shares.

Yet amid the gloom we still see signs of hope and supermarket group Morrisons has proved that there can be life after apparent death. Morrisons said this week that it expects to report higher profits than previously expected for the year to the end of next January.

Independent retail market analyst TNS reckons that Morrisons has increased its share of the grocery market to 11.6% in the 12 weeks to 12 July, up from 11.2% a year ago. Sainsbury is also ahead yet Tesco has slipped by only one tenth of one percent, suggesting that the smaller players are still being squeezed out by the big boys.

The point is that some companies are doing well, even in the struggling retail sector. It is no longer right to stay out of the market despite the concerns over the UK economy. The odds favour getting back in cautiously and selectively. Just don’t expect miracles immediately.

Goodbye to all that

Hooray twice over. At last we have some concrete economic plans from the Conservatives and at last we have a proposal to do away with the worse than useless Financial Services Authority.

One appreciates that political parties in opposition are reluctant to wheel out policies too soon in case the impact is dissipated long before the general election has arrived. That the Tories felt able to trot something radical out now is a sign that the general election campaign has started with the best part of a year still to go, as happened the other way round with John Major.

The idea to shift regulatory power back to the Bank of England is correct. The Bank does not always get it right but it has been right more often than the FSA and would have been in a better position to handle the banking crisis more discretely had the FSA not been on the scene. The Bank has a much better idea of offering guidance before rather than after the event.

The Conservatives’ proposals will unfortunately mean more public money being thrown at rewarding failure. Redundant executives from the FSA who handed themselves huge unjustified bonuses will have to be paid off handsomely. That will, however, be a price worth paying to end one of Gordon Brown’s less successful ideas.

Unfortunately for Brown he can hardly admit he was wrong and pre-empt the Tory plan. Instead, the idea of yet another body supervising the tripartite regulatory system sounds like an extra layer of executives who will have to be paid for delaying action.

That’s education

Apart from dumping debt on the next generation, we are simultaneously making it harder for today’s youngsters to cope. Alan Milburn is the latest government minister to realise there is something wrong with the education system but he joins a long line attacking the symptoms rather than the cause.

Jobs in the professions are becoming increasingly the preserve of rich offspring because state educated pupils are not taught to a sufficiently high standard and working class youngsters cannot afford long courses as ever higher fees have to be charged to pay for university education that is spread too widely and too thinly.

Unless these problems are addressed then trying to force more children who cannot cope into universities and the professions is doomed to failure.