Forum Archive Index - April 2000

["Oliver Shapleski" <oliver.shapleski@vuw.ac.nz>]

SORRY IF THIS IS TOO PHILOSOPHICAL, BUT HERE'S A COUPLE OF THINGS TO THINK ABOUT!

 

Well, I've been kinda looking forward to this and my anticipation has been well justified.  Didn't experience 1987.  I was still playing with trucks and toy soldiers in primary school and my parents never had any money so they weren't about to slit their wrists over losing some.  I've taken a pasting in the past week, but lucky for me I'll be playing the markets for another 50 years so I'm not so concerned.  I just find this interesting, and here's why...

 

I see fear, read fear, hear fear.  Then I see, read and hear smugness, a little "haha told you so".  There's the explanations, the justifications, the corrections, the criticisms.  All of these are cast around in a pool that resembles a bloodbath.  Why?  It's just money! 

 

I sense a few too many criticisms being fired around, and some rather random assertions.  Ril is actually quite right - at least in my opinion - about the larger nz "blue chips" being overvalued.  When business confidence falls, consumer confidence falls.  Spending is reduced just out of a lack of confidence, and it's a reduction in ALL spending.  Then businesses really feel the pinch as sales are down, and they have to lay off people (and no employment law is going to stop this), which means less take home pay for billy-joe and billy-sue, which means less spending in even wider sectors.  Sorry, no money to take that trip.  AirNZ makes one less ticket sale, cuts flights further, cuts jobs, removes some of the excessive telephony services, gets the cleaners in one day less a week... anyone who can't see the contractionary pattern arising here which is very REAL needs to open their eyes a little and view the wider picture.  Yes, random fear and a dip in the stockmarket actually does cause more than just an "imaginary" paper loss.  There are real losses which then cannot help but feed in to the revenues of the blue chips and WILL hurt the dividends.  Now directors don't like to reduce their dividends, but IMHO you'll see a few drop in the next six months.  Or maybe in a year.  They will drop unless the psychology that's driving all the selling is overborne by psychology that drives confidence back in again.  This is what I find interesting - that something as intangible as psychology can have such a profound effect on economics.  The question then is "can economics have a countering effect on psychology?"  This market correction is big enough to warrant a big drop in interest rates by the Fed in the States and the RB here.  I actually think Alan Greenspan will announce a drop in the next seven days.  If he doesn't, I'm afraid I'm thinking there will be a prolonged depression.  Why should I be interested? 

 

There's only two things certain in life.  Death and taxes.  Oh to be a funeral director or tax lawyer in times like this.  Sorry, my smugness might be coming through. 

 

On the positive side?  Perhaps this will be the catalyst for an increased commitment to saving in New Zealand. One can only hope Labour will take this opportunity to start thinking seriously about forcing people to save money for their retirement given the correction in investment valuations.  Bringing in a compulsory scheme now, I'd say there's less chance of people being stung by fund managers screwing up, which was an underlying factor why National pulled their support on Winston's plan.  Of course a better scheme needs to be devised - despite all the good a scheme would do, Winston's was a financial dog (I liked the idea in theory, crunched the numbers and saw the bleeding obvious), but that's a different story.  RIL - what do they do in the UK for superannuation provision?  (And please be nice Ril - I'm very interested in your comments but they are rather too inflammatory for others sometimes and I'd hate to see you censored off entirely)

 

The jungen.