Peter Switzer says it’s OK to accentuate the positive.
In these tough and negative times, for our businesses and for our clients, I thought it appropriate to lock into the positive.
The avalanche of scary headlines and mounting economic evidence (of what we always knew had to come through) can be a powerful reinforcer of excessive negativity. Let me leave Australia out for a moment, and put the focus on the source of our problems: the USA, the UK and Europe.
It is easy to hurl insults at these economic fiefdoms, because they either started the sub-prime mess or played fast and loose with their risk management strategies – as well as the truth – when the you-know-what hit the fan.
How bankers lost sight of the threats to their balance sheets could be the subject of a documentary, which might be called, “The Dumbest Guys in the Room”!
They weren’t helped by the government responses either; and it wasn’t until we virtually stared into the abyss, post-Lehman Brothers collapse, that the penny (or euro) dropped, that it was realised interest rates shouldn’t be going up, and that banks needed some government ownership to give credit markets the confidence to trust banks again.
The freezing of the credit markets was ignored as the dopes in the US Congress played the fiddle while stockmarkets burnt a hole in investors’ pockets. The much-maligned British Prime Minister, Gordon Brown, showed the Yanks what a rescue might look like – and thankfully, the smarter guys in the USA said: “We’ll have what they’re having!”
At the start of this mess, the reaction of the Governor of the Bank of England always worried me, with his “hands-off” stance. That all changed with the demise of Northern Rock and the eventual failure of HBOS. Free-market solutions were not working in the era of the grossly-misnamed hedge funds and naked short selling. The failure of markets to resolve their issues has meant we’re all Keynesians now, and thank the Lord for it. Back in 1987 when the market crashed, I had the pleasure of interviewing one of the great Keynesian economists of the 20th century, John Kenneth Galbraith. He underlined the problems for economies when a market designed to raise capital for corporations “is reduced to little more than a casino”. That’s when you end up with outcomes that leave you shaking your head, asking how did we let this happen? Last December, Fortune magazine had the CEOs of the big finance firms of New York on its cover, and asked: “What Were They Smoking?” For a while there I thought the world’s governments were still passing around the joints and some central bankers were going along for the trip.
But they are thankfully straightening up their act. Between now and the new year, the good decisions have to flow, so the good news eventually outweighs the bad. This is a work in progress, but at least locally, our main decision-makers are getting the big decisions right.
This should prove to be good news for our clients and businesses. The $10.4 billion stimulus package and the 200 basis points cut in interest rates from the Reserve Bank has given confidence a chance in Australia. It was heading downhill fast, and this pre-emptive action, before some really bad news showed up, will be critical in creating a softer landing in Australia.
Recently, I had Anton Tagliaferro, the founder of Investors Mutual, on my Money Makers program on Sky Business. He was very negative, but tried to look for some silver lining in the hovering dark clouds.
To engage him in debate, I went looking for good news to offset the confidence-crushing market headlines that were starting to get through to real people in the real world. I found twelve good ’uns, but the more memorable one was that history says a 20 per cent-plus bounce in the six months after US consumer confidence hits rock bottom is typical.
This reminded me that it is always coldest just before the dawn. Other slivers of good news pointed to better credit markets, lower LIBOR rates, a lower meaÃ‚Âsure of market fear, rescue funds getting to banks, and the fact that a lot of bear markets have ended in the last week of an October! I know the Government’s deposit guarantee has not been handled as well as many of us would like, but I had enquiries from clients worried about smaller banks.
I read an article by a mate (so I won’t name him) who said none of the big four banks asked for the deposit protection.
They didn’t, but only because they were poised to gain at the expense of smaller banks if the deposit guarantee were not enacted. Our investment futures are in the hands of overseas decision-makers and it reminds me of one of my favourite Woody Allen lines: “More than any other time in history, mankind faces a crossroads.
One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly.”