Talking with a friend and a fellow CEO of an investment house last week and we got onto the subject of children, teenagers in particular. It was all light hearted stuff but he, being a good fifteen years older than me and with me facing a future containing ultimately four teenagers, had me in stitches. He finished off by telling me that he once had a car sticker that read.
TEENAGERS AVAILABLE: GET ONE QUICK WHILE THEY STILL KNOW EVERYTHING!
Flying back to Cape Town where Warwick Private Wealth have their Head Office I got to thinking just how much teenage behaviour is similar to that of the markets. Yes it’s petulant and unpredictable, often a bit messy and moody but it is also often confused and poorly lead, patience and some understanding is required.
Interest rate hikes are rather like being grounded and if too frequently used lose their impact. Interest rate cuts when used like a reward soon lose their intended purpose and become an expected benefit and disappoint eventually in their size. Ultimately the parent runs out of places to go, the teenager cannot be grounded permanently or rewarded for simply breathing, the market eventually ignores the pain of a rise, or the pleasure of a cut and once the banks have cut rates to virtually zero they have thrown away all their room for manoeuvre. You cannot get sent to your room if its your room you have trashed!
The recent cut by the UK of 1.5%, lost the Bank of England, a previously rather austere, distant and cautious parent, not only a huge amount of future manoeuvrability but also a great deal of credibility. Hence today sterling may as well just walk into the Euro, before it is actually worth less than its continental brother!
Another strange feature of the market and how a bear market is always so schizophrenic. Firstly, a $120 per barrel, and rising, oil price drove the market down, due to fears of inflation, where now a falling oil price shows lack of demand from recession and therefore also drives the market down! Secondly, how a much anticipated flight to gold and dumping of the dollar never happened and proved that lady liberty and her currency are far more attractive sirens than the yellow metal.
In addition, massive news about such things as central government support can result in markets sliding and yet Japan, announcing it is officially in recession, causes its market to go up 2%!
The financial world is simply looking to have its body clock reset. This will allow it to find a new base, balance and composure. Just like a teenager, this may take some time. Hormones are pumping through the system and speculators like flirting teenage girl or boyfriends are causing our volatile, confused and anxious markets way too much emotional hiatus.
There is though one simple truth, a truth we can all grasp and, although I do not wish to sound at all religious or preaching, has stood the test of time. My Nana swears by it today at 94, as she did when I poured my aching teenage heart out to her all those many, many years ago;
THIS TOO WILL PASS!