Dow Jones Hits All Time High

The Dow Jones reached an all time high, closing at $14,254 on Tuesday 5 March 2013. The index continues to rise and currently stands at $14,296 on 7 March 2013. The equity markets have clearly been provided with a boost following the substantial amounts of money printed by the major central banks last year.

The markets are particularly volatile under the current climate. Whilst equities have risen significantly over recent months, the price of gold has tanked, falling from a high of $1,791 last year to $1,574 on 7 March 2013.

The significant uptrend in equities combined with the sharp downtrend in gold suggest that an economic recovery is anticipated by the markets. However, this is not the case. Economic data suggests that the UK is falling into a triple dip recession, whilst Europe has announced negative growth in the final quarter of 2012. Most of the world markets are in recession, China has slowed down and the US is likely to face a slowdown once government finally faces up to the fact that significant spending cuts are required to tackle their fiscal deficit.

The major move in the markets is driven predominantly by the unprecedented level of money printing. Bloomberg explain that we are facing a period of global “currency wars” as the major economies attempt to devalue their currencies and artificially boost competitiveness.  The Bank of England have already indicated that they will consider further Quantitative Easing (or money printing) this year.

So what do we make of it all? The stimulus provided by last year’s money printing is still filtering into the system. Equities have risen sharply and may well continue to rise for a few months yet. However, the equity markets do not correlate with the underlying performance of the global economies. It is unlikely that we will see a recovery in the UK for a few years yet. In fact we can expect rising inflation as a result of the quantitative easing methods used by the central banks. The equity markets are due a sharp correction but this may not happen whilst money continues to be pumped into the system. Once the banks stop printing, or the US finally decide to tackle their fiscal cliff, we could be in for a huge downturn.

However it is not all doom and gloom. Stocks and shares are rising and so you are likely to have profited from your investments in shares. A continued downturn in the UK economy, or better yet a major correction is likely to benefit dynamic small businesses.  Strong contactors and small businesses are more likely to establish themselves during a recession. Investors are increasingly looking to invest in small businesses in order to maintain the required yields on their assets. The introduction of the Seed (or SEIS) scheme in the UK offers significant tax benefits to angel investors looking to invest in new start up businesses.

If you have a start up business or would like to know more about the SEIS scheme, please feel free to contact Belsize Accountancy on 0207 043 0052. We specialise in working with UK contractors and small businesses.