Markets pause for breath!

FTSE100 @ 6352.7, +22.21 (+0.35%)

OK, so markets have subsequently taken a breather and found themselves wanting somewhat. 

But, whilst economic recovery continues to be viewed as fragile, the current concern seems to be that markets might have to fend for themselves a little more without the crutch of central bank stimulus.
For myself, I would suggest the sooner the better as the dependency on artificial cashflows breeds complacency rather than competition and performance improvement.
Similarly this can be seen in the behaviour of some borrowers in this current environment, where some just won't take the opportunity to change behaviours, preferring dependency to independence and fully expecting assistance to come from somewhere in order to maintain their unrealistic lifestyle expectations.

But, that aside, there is still the strong view that there are invest able funds out there, waiting on the sidelines, both in companies and in managed funds waiting for opportunities to present themselves as company cashflows continue to strengthen and recent stock market performance attracts investors back into markets again.

Slight concern for me that the next phase in markets may coincide with a need to invest should economic demand start to increase and new "fledgling" markets open.
That being the case, it might be that company forecasts will disappoint in the short term but that strategic investment should only enhance prospects in the medium to longer term for those companies that are well managed and have a well thought out strategy.

In light of my view that markets are dominated by a short term interest, I will be an interested observer of analysts, and investment views that appear to respond adversely to what appears to me to be normal and expected ie. sell these companies for others with better short term prospects and so on and so forth in an ever diminishing cycle.
Would that deter some companies from investing in a longer term strategy, just to keep analysts and city views positive in the short term? I hope not.

But, in terms of this next phase, I can see it happening already in such as Vodafone with the introduction of 4G, but also in other industries where the traditional customer base moves online (supermarkets), or in tangible industries like manufacturing and construction where new plant and equipment, new technology, and land comes back into growth plans, along with a review of inventories and working capital.
The downturn should have presented companies with opportunities to make efficiency savings in preparation for recovery so that the yield from working capital can be maximised as demand increases.
And its those companies that can adapt quicker and gear up to increased demand that might yet achieve new higher levels of cashflow and profitability in the coming years.

But if companies can't gear up to increasing demand cashflows and profits will plateau; if they have to invest, profits will dip in the short term; and if they haven't made efficiency improvements then profits and cashflow will drop off as the demand for greater working capital absorbs cash and/or increases borrowings.

As ever, an increasing demand for capital to invest might end up coinciding with increasing interest rates so foresight is required.

Even more risky but tempting for seemingly asset rich companies would be expansion through acquisition which brings its own risks given valuation premiums, and existing goodwill.
This can then be followed by integration problems compounded by cultural issues.

And, worryingly this can be a particularly tempting option when new management comes in, but not always executed with the company's and shareholders interests in mind.

So, as ever its these well managed companies, with clear, logical strategies that I want to look out for. 
If I can spot the signs of course!
Although I would hope that at least some of the signs would be in the companies that I already look for!