International Finance Topics
Michael Wilson considers the theory that new technologies are rewriting
our
traditional rules for measuring stock market value
There was a time, and a very good time it was too, when the financial
markets knew the rules and didn’t break them. If the Dow Jones
Industrial Average happened to be up, then you could usually be
reasonably sure that the bond markets would soon be moving along
strongly and that bond yields would inevitably fall as a result.
If the pound was strong, then you could safely assume that there
wouldn’t be much of a call for a rise in London’s bank
rates.
Conversely, if somebody told you that Americans were raising their
spending twice as fast as their earning power permitted, or that
Tokyo was having to recycle ten-year-old bonds it couldn’t
afford to redeem, you’d probably run a mile.
International Finance Topics & The Financial Experts
So maybe you can’t really blame the financial experts for coming
up with such a weird-sounding collection of explanations, now that
stocks are soaring worldwide but bonds are slumping in favour of cash.
They look at the way the industrial world is running at full tilt
and at full employment, despite a 150 per cent rise in oil costs,
and they wonder at the fact that inflation rates are remaining low
despite rampant consumer spending, and they realise that they have
lost their bearings. But they need to cover their backs somehow.
So they mutter darkly that the world markets are ‘dislocated’,
and that all the normal rules of economics are in suspense. Wall
Street is just running on hype, they say, and those gullible American
investors are buying every word of it because they’ve been
duped into believing this stupid ‘New Paradigm’ theory
instead of using the brains God gave them. When they do decide to
cover their positions they go for cash deposits instead of investing
in bonds, which would at least give them a capital gain if everything
went belly-up. Mark our words, the sceptics say, it’ll all
end in tears. They’ll wish they’d read their economics
textbooks some day soon.
International Finance Topics & The strange Phenomenon
It wouldn’t be so bad if this was just an American thing, but
the same strange phenomenon is happening in other places as well.
There’s simply no rational explanation at all for the recovery
in Japanese stocks, they say, given that Tokyo’s current economic
fundamentals are scarcely better than they were five years ago (and
by some accounts, worse). The sinking of the euro last year
was just plain bizarre, considering that the newly-launched currency
had the backing of 300 million people, including the world’s
second-biggest net exporter, Germany - and that the dollar, the
euro’s biggest rival, wasn’t exactly in great competitive
shape itself.
Meanwhile those blasted Chinese have somehow managed to escape
the currency devaluation which everybody - but everybody - agreed
was coming last autumn, even though Beijing’s export industries
are still being decimated by cheap competition from elsewhere in
the region. And another thing. Every time the pound gets stronger,
the Bank of England raises interest rates again just to make it
stronger still. Dammit, doesn’t anybody believe in fundamentals
any more?
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