All is not as rosy as it seemed in September

To paraphrase that old joke, "a funny thing happened on the way to the stock market this month…" inexorably, shares went up.

Actually in the case of the US market that is an understatement. The S&P 500 had its best September since 1939! The index rose 8.8 per cent. The Dow was up nearly 10 per cent and is now positive for 2010.

Europe joined in with the FTSE, gaining 6 per cent. And the DAX, 5 per cent during the month. Even Shanghai, which is down 18 per cent for the year, actually rose — by just half per cent. But Tokyo made up for that, with its increase of 6 per cent.

How can this be? If you follow financial news, you are being told that growth is in trouble. Protectionism is on the rise. Consumers are weak. Japan is moribund. China is slowing down. It seems odd.

Reading the analysis, there are a myriad of reasons. Firstly and most obviously — shares were beaten up in August. (Dow & S&P down 4 per cent in August). Prices were cheaper and money was looking for a home. Secondly, M&A activity is back into the market. Deals are pushing up stocks.

Dollar index down

Thirdly, companies are still buying back their own stock which also adds a fill up to the market. Inthemoneystocks.com offers up the reason that the dollar index was down so that also contributed.

I think that one of the big reasons was that the Fed almost admitted it was ready to print more money with quantitative easing II. The Bank of England is likely to also do this. And the ECB continues to give banks as much money as they want — at next to nothing costs. All the rhetoric from central bankers is that they are not going to sit on the sidelines and watch the whole lot go down again.

So a dose of reality — for many markets September's gains only erase this year's losses. Tokyo is still down 1 per cent for the year. Shanghai is down more than 18 per cent and the Euro-bonuses are barely budging over 3 per cent. September is a lifeboat not an ocean liner.

The economic malaise in the US and Europe will take its toll on corporate profitability. Government austerity plans are about to hit consumers in many EU countries. The US is facing divided trouble political times in the mid-term elections (and who knows what after November 2).

The clearest sign that things are not normal is that gold rose during September, even as stocks went up. The 4 per cent gain to a record high of more than $1,300 (Dh4,771) an ounce tells me all is not as rosy as it seems. Gold remains the investment of last resort for many investors. The winter months are going to be hard.

Even Walmart's CEO of the US division, Bill Simon, warned "for all you adults out there I think you should plan on socks and underwear for Christmas." Hardly a rousing endorsement as we enter the fourth quarter!

Tune in to CNN International each weekday at 2200 UAE time to catch Richard's show, Quest Means Business.