Monday, 17 November 2008

Market psychology :Talking ourselves into a severe recession

  • Could it be that we are talking our way into a recession that is deeper and longer than it need be? The advent of real time economic data on the web and on satellite broadcasts is bringing home to a wide audience the impact of an economic slowdown much more quickly and with greater personal immediacy than in prior downturns. In the market setbacks of the mid-70's and late 90's the pace of newsflows was set by the comparatively gentle rythmn of the print media or terrestial broadcasting. Consumers had time to observe the impact of an economic contraction over a period of weeks or months. A news story here about falling exports in the car industry another there about layoffs in the midlands unfolded gently. Personal spending patterns evolved gradually as the extent of the malaise evolved.

    Today, anyone with a computer or a satellite television subscription can follow the excessive gyrations of the equity and bond markets as they happen. Could it be that this immediacy that has helped spawn an apocalyptic view of the economic world? There is now little or no time for measured response, views and opinions have to be provided on the spot and the resulting language seems to be ever less temperate. It could be that the sharp falls in retail sales is in some measure a reaction to the wave of information that now reaches the consumer. Will it spawn an expansion of degrees in the psychology of finance? Faced with an apparent apocalypse one local American lady is talking about uprooting her ornamental trees and replacing them with productive fruit trees.

    Trying to make sense of all of this it would seem that :
    Stockmarkets are reflecting an unholy combination of a buyers strike and panic selling depressing valuations
    The dollar is strong because America's problems are relatively containable in comparison with the UK and Europe's
    The stockmarkets in the BRIC's and N10's have discounted the slowdown but their currencies haven't yet
    We are seeing an unravelling of the post 2001 growth that was entirely fuelled by excessive credit
    Q4 2008 GDP will be horrible ( why not -5% ) and Q1 2009 will be as bad if not worse
    Summing up it's not a depression but a purging.

No comments: