Investophobia

First of all, let me equivocally thank the many of you who emailed me to brag about how many of the words you knew. Particular thanks to those chess players who wrote in to tell me they each knew all of them, thus negating the one viable excuse for my illiteracy. Phoey.

On the plus side, at least today’s new words are perfectly suited to describing the vicissitudal path of the Australian stockmarket. Financial uncertainty in Europe and the US has engendered a rapid decline in our markets and the Aussie dollar, leaving many investors in a state of penury and considering a career change to numismatics. While I don’t mean to sound glib or in any way impugn the Greek government for their various financial peccadilloes, their ingenuous and subsequently quixotic approach to sovereign debt has forced innocent Australians to ford through a fractious week in the markets with a Spartan parsimony.

Leaving my orotundity aside, the Aussie index fell a whopping three percent in the first 15 minutes of trading today, continuing the downward trend that has seen a record week of losses. While the turmoil in Europe for the Portuguese, Greek, Italian and Spanish (the so-called ‘PIGS’) economies is reason enough for their tortuous week, the same factors shouldn’t really be playing such a role for our market turbulence – and certainly shouldn’t exacerbate it. So what’s going on?

For starters, the globalised nature of today’s financial markets means that you simply can’t isolate the effect of regional factors to only those areas; international debt jitters will be felt everywhere, and we’re not going to escape on the basis of geographical remoteness. Nor can we count on China’s stability to pull us through a potential double-dip: uncertainty over the future of Chinese monetary policy and their housing market is only going to further ruffle feathers at home.

But most importantly at all, we probably need to start paying a bit more attention to our own economic fundamentals. We can no longer ignore the possibility that – shock! – we may have just gotten lucky throughout the global crisis. On the off chance that our resource sector pulled us through, perhaps a new Super Tax on mining is not the way to go. If we are actually in a housing bubble, then perhaps adopting some of the Henry Tax Review’s suggestions for slowing housing demand are worth another look.

Or perhaps we simply need to stop naively expecting our economy and markets to grow at irrationally high rates – and start thinking realistically about our future.

During the financial crisis, I once had a prominent chess parent come up to me while I was playing a tournament game and berate me for her stock portfolio collapsing. (Presumably, she incorrectly thought I represented the government, and somehow, therefore, the reason for the market collapse.)  Apparently, she expected her investments in Australian shares to continue to grow by at least 15 percent every year.

I tried to explain that if she really wanted to reduce the risk of losses in the portfolio, perhaps she should choose a less risky investment, such as a term deposit. “Why would I want to do that?” she exclaimed incredulously. “I wouldn’t make as much money!”

Perhaps our culture has gotten a little too comfortable in exceptionally positive market conditions and unsustainably high returns. We did come out of the crisis in good shape, but that’s no reason to get greedy. After all, we don’t want to turn into greedy, little PIGS, now do we?

 

DISCLAIMER:  As for every post on this website, the views expressed are my own and in no way represent those of the Australian Treasury, the Australian government, any other government, any other grandmaster, chess players generally, or anyone who rides a bike, whether clothed or not.