3 March 2021
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Media madness

Peter Switzer
23 March 2010
The ups and downs of the stock market daily and the media reports that go with it really have to be scrutinized with the kind of cynicism you reserve for politicians. That is, you have to note what they’re saying but it’s not always wise to take them seriously.

In fact, I get so tired of non-stories that excite and then de-vibe the market players that I am really looking forward to seeing interest rates rise in the US. That’s when we will have a real market-moving story!

Things to worry about

The case in point was yesterday when our market lost around 0.8 per cent, with commodity prices down, fears about Greece having to go to the IMF and the US Congress grappling with their health-care legislation.

Oh yes, in case you want other things to worry about then you could throw in uncertainty over the Yanks and their financial institutions reform bill. In the absence of big news to excite the market, there are always negatives than can be used by professional traders to send the market down ahead of buying it the day after.

The stories

To understand how you have to cut through the media madness that we have to deal with daily, have a look at what Bloomberg led with this morning.

“U.S. stocks rose and the dollar erased gains, helping commodities reverse losses, as a rally in drug and technology shares overshadowed concern higher interest rates and swelling public debt will stifle the global recovery,” it reported.

Yesterday we were told that the market is worried about the health bill and the impact on stocks, well today health stocks rallied on the eradication of uncertainty.

Yesterday, lower commodity prices with a stronger US dollar was the concern but that has all been reversed today, which should help the stocks that lost yesterday to win today.

Then there was the stupid story that India raising interest rates spooked the market. India? Its interest rates? Come on.

Don’t get me wrong, India is becoming an important trading partner and vital to world trade but if they raise interest rates to contain inflation it actually will sustain their long-run demand. Tearaway inflation can undermine currencies and mean the restrictive policies to prick a prices bubble should be a real ball-breaker for an economy.

Interest rate rise response

I will concede there is reason to worry about swelling public debt eventually hitting global growth but that will be more likely in 2012 than 2011. The first job now for global economies is to get growth going so well that it requires governments to respond with interest rates rises.

Some experts say that this will send Wall Street down but that would only be a short-term reaction. The more considered reaction will be that the US economy has repaired itself sufficiently, with the housing sector out of its over-supply predicament and foreclosures as well as a more confident consumer, that it will need interest rate rises.

Remember that the US equivalent cash rate of interest set by the central bank is 0 to 0.25 per cent while ours is 4 per cent. To use a term bandied around by our RBA Governor, Glenn Stevens, when the US economy approaches “normalisation” so will its interest rates.

That’s when the Nervous Nellies with their cash on the sidelines will return to the market and we can make some headway in seeing the stock market indexes zoom past the levels we last saw in November 2007 before the GFC crash de-normalised our lives and our perceptions of what is important. Pray for US interest rate rises, if you know what is good for you. 

 

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

 

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