Garden economy is not as rosy as you might think

Someone asked me this week what my thoughts were on the economy and will we go back to the 'same old, same old'?

My honest opinion is that I think there is still a sting in the tail and the recession is not over - there will inevitably be further garden businesses that will go to the wall and I think we will continue to see considerable job losses - keep an eye on the larger landscaping businesses, especially in the commercial sector.

The revelation that up to 30% of horticulture companies are in financial trouble comes as no surprise.

Since their bottom in March, the financial markets have rebounded strongly leading nearly everyone to feel that we are on a strong course to financial stability.

Don't you believe it, in my opinion, this rally, which started as a relief correction has gone beyond what anyone can consider honest fundamental value. irrational exuberance is once more in control and something has to give.

An article on today's Financial Times website suggests that sentiment remains fragile on Wall Street and it is just Federal support that is keeping the economy up at these dizzy heights.

There is also one other aspect to this. Having talked the economy down then up again, traders and institutions, who have great power and an attentive audience, are now in a position to talk the market down again - there is a huge amount of money to be made.

I have added a weekly chart showing the Footsie 100 index since its bounce off of the historic lows of March 2009.

You can see how the markets have risen on a weekly basis. Only three weeks since March have been negative and even on a down week, the candlestick pattern shows that there was no support for a correction and the upward movement has resumed.

The long downward candlestick for this last week will be telling investors/traders that a correction is on the cards - nothing goes up forever and many took profits and some will be short selling from the recent highs.

Click to enlarge the chart - At the moment the price is supported by the 100 day moving average (black line) and we could possibly see the price re-test the recent high of 5197. It will be this test, if indeed it comes, that will be the deciding factor.

Rise through 5200 (the markets current resistance) and we will more than likely see another fast and furious rally but, if this indeed is the top then we are more than likely in for a caning - October is, historically, prone to crashes.

Profit taking and fear could replace buying and greed for the foreseeable future.

This is not intended as investment advice.

Comments

[Richard Boyd]

Good post Phil

Hopefully people involved in the sector will read it and understand that they need to be very careful as the mess still has not finished unfolding.

We are seeing a false bounce created by fake money introduced by governments, so the market correction is a false one.

One thing that is certain is that at some point
interest rates are going to go up and in big way. So make sure that you have fixed rate mortgages, loans…and take care of your existing customers, new ones will be harder to find.