12 August 2011
It's now been seven days since the big drop in the markets on Friday.
That's seven days since, after waiting a grand total of about eight minutes, we saw the media and twitterverse explode with "Armageddon", "free fall", "meltdown", "GFC2" and one of my personal favourites on Tuesday morning, "$76 billion was wiped off the stock market in a matter of minutes". (Yes. Wiped out. Never to be seen again. Until Tuesday afternoon when it all got "wiped" back on).
Fast forward to today and...no Four Horsemen. Super intelligent apes nowhere to be seen on the Golden Gate Bridge (great movie, by the way, go see it). Wall Street not raining stockbrokers. Indeed, the market enjoyed a turnaround. This week, by the way, our market actually finished...higher.
Lesson #1: don't overreact to what happens in the short term, especially if what matters to you (the economy, your super, your job) is long term. It doesn't matter what happens "in a matter of minutes", unless you sold all of your shares in said minutes. As Paul Harvey used to say, "The stock market is like a roller coaster, the only ones who get hurt are those who jump off". So unless you retired on Friday and spent all your super on Tuesday morning, your retirement savings were not "wiped out".
Of course, things could still turn bad, and I'm not trying to talk things up - just bring some balance. The economic problems and facts mentioned in even those sensational articles are generally real. Europe and the US are in trouble. Our retail sector, as David Jones' awful July sales update showed, is particularly in the pits. But even if the economy is slowing down or even stagnating, it still doesn't validate the hysterical words above. There are plenty of economic pluses for Australia that didn't go away just because the market wet its pants on August 5.
You've heard them before - our Asian mineral customers, the RBA's ability to drop interest rates since they're not near zip like other countries, our still low unemployment, and a safe level of debt (that every economist I've spoken to think could be used for fiscal stimulus, no matter what some pollies say). As for the stock market, if you have a long term outlook - say 5-7 years - there are many very successful fund manager who saw those market drops on Friday and Monday like the Boxing Day sales come early.
Unfortunately, it's the bad news that tends to get all the headlines - and sticks in too many heads. Cochlear CEO Chris Roberts gave me a quote from economist and philosopher John Stuart Mill at their results update on freaky Tuesday: “I have observed that not the man who hopes, when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage.”
There's good-ish reasons for why we give more weight to bearers of bad news such as journalists and other opinion leaders. We've always been naturally suspicious of pollies, such as last Friday when we knew they were trying to talk things up (not that they're automatically wrong. They have to base those positive comments on something real, you know).
There's also good-ish reasons, however, to also be sceptical of journalists and other commentators. Journalism has usually been anti-establishment, doing the worthwhile business of making known truths that governments and companies don't, which is often bad news. But often we must report is anyway, even if it's unpopular.
But like the pollies, we aren't perfect. The abovementioned kudos of bringing bad news that they know people will jump on nudges some journos - and also plenty in the New Media - to be a bit too one-sided in delivering that bad news. Then add to that the reality that many of the most eye catching and widely read stories last Friday were written by those who, to put it kindly, do not usually cover business and economic news. Some of the folks on Twitter never cover it (who are even less accountable than journalists, for better and worse), and I say that even though I love their cotton socks.
Getting carried away with a big, rolling story is a human tendency. Who wants to be the wet blanket when everyone around the water cooler is trading adjectives for "catastrophe"? And if that, or being "the sage" is what you want, you probably stopped reading this post a long time ago.
If you are genuinely keen to know how you should digest breaking, dramatic economic news, take it from someone who has lived on both sides of the finance and media fence. Don't gulp it. Give it a chew, pick at it over the next few days, make sure you know who prepared it and mix it with some contrary opinions. It's all about balance, as they say on MasterChef. Business, finance and economics should be slow food.
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