Sigh. The Dad’s Army commentary at Business Spectator is being sorely exposed by the latest dynamics of the global economy. Robert Gottliebsen is revealing:
…this correction is more about fear than fundamentals, so expect a continuation of sharp fluctuations both ways as the practices involved in a correction play their role.
There is a lot of fear in the market and there are dangers that have not yet been recognised by the market.
For example, I have just returned from a cruise around the Baltic Sea and I discovered that Germany, the US and the UK are playing a high-risk game with Russia while we are also seeing new turbulence in Korea. To date, the main market concerns are the Chinese economy, Greece and higher US interest rates.
When a market moves on fears of events that do not convert into serious problems, then corrections reverse themselves.
I’ll just let that speak for itself. Meanwhile, Alan Kohler takes on the importance of oil:
The drop in the oil price back to just above $US40 a barrel is an unambiguously good thing for the global economy, although you wouldn’t know it by looking at the sharemarket.
The cries of pain from producers drown out the celebrations from consumers because it takes a while for the effect to hit the bowsers, and always does, especially since Australia has so much invested in the fossil fuels.
It was also a factor in the big selloff on Wall Street on Thursday and the global sharemarket correction generally, adding to anxiety about a flight from bonds as the (diminishing) prospect on a US rate looms.
…But the structural decline in the oil price is an unambiguous positive for consumer spending and GDP growth and a negative for inflation, which means it will probably force the Federal Reserve to put off raising interest rates next month.
…The latest fall in the oil price is profoundly significant: it both undermines financial markets and supports economic growth.
That makes it the best thing to have happened since China started exporting disinflation in the early 2000s.
This is the conventional line followed by conventional economists for thirty years. It used to be true but is no longer. The income windfall enjoyed by oil consumers – mostly in developed markets – is prevented from being spent in the newly minted mercantilist Europe and the consumers of the US are still very damaged from the GFC and save extra income when it arrives. To date, falling oil has been accompanied by falling consumer spending.
Moreover, emerging markets themselves, which are more often than not oil producers, have also grown into a very large component of global exependiture and when they are hit by lower oil prices with various negative impacts such as falling asset prices and jobs, they too stop spending.
In fact, the entire edifice of falling energy prices in the context of structurally weak global demand, peak debt, and eroding demographics is economically problematic as debt can’t be inflated away. At best, lower oil prices are a problematic development for the global economy with as many losers as winners and could be the straw that breaks the camel’s back.
Mssrs Kohler and Gottleibsen built careers during the Great Moderation when the world was a relatively simple place of Western pre-eminence, seamless globalisation, endless credit growth and a one way outlook for asset prices. During that period a positive outlook was all it took to get rich.
They are representative of a Baby Boomer generation that really has no idea how lucky they were, preferring to see good fortune as self-earned, over what it really was, a serendipitous moment in history.
Now their positive outlooks and simple solutions are as damaging to investment prospects as they are quaint.
