The 1979 movie Being There, starring Peter Sellers as a simple gardener who winds up being asked by the President of the United States to give advice on the declining economy, encapsulates more than a grain of truth. Sellers’ message was that the economy is like a garden subject to the seasons and as long as the roots are strong it will always begin to flourish in the #spring. The point was we can’t expect eternal summer and we should use the winter to get rid of dead wood and prepare for better days.
In fact, it may be that better days are nearer than we imagine having been suffocated with so much negative news for so long. The G20 meeting held in London on April 2 may well signify a turning point. On that day, the world’s richest nations came together pledging to work towards an economic upturn. Without exception, the leaders of these powerful countries promised in a joint communiqué to restore confidence, create jobs, encourage lending, strengthen financial regulation, and fund and reform international financial institutions. Moreover, they say they will reject protectionism in favour of global trade and will build an inclusive, green and sustainable recovery.
By acting together to fulfil these pledges, the delegates believe they can bring the world economy out of recession and also prevent the recurrence of a similar crisis. Host of the summit, the British Prime Minister Gordon Brown, unveiled a US$1.1 trillion package towards this end and quite rightly said, “A global crisis requires a global solution”. He went on to say that the meeting marked the emergence of a “New World Order”.
This unprecedented unity of purpose to end the crushing crisis that has taken such a terrible toll on people’s jobs, homes and investments saw markets from Tokyo to New York rebound. Following the communiqué, the FTSE share index closed up by more than four per cent, an optimism that was reflected by most major stock markets. And just days later, came an upbeat forecast from President Obama’s respected economic advisor Lawrence Summers. This former president of Harvard University said he is reasonably confident that the US is likely to see positive economic signs within the next few months.
There is more than a glimmer of good news coming out of Britain, too. Bank of England figures indicate that new mortgage approvals rose by 19 per cent in February, which signifies that buyers are returning to the property market and banks are once again lending. In March, UK house prices actually began to rise. Moreover, figures published by the European Commission suggest that consumer confidence is returning with domestic demand likely to strengthen.
Sadly, there are some chronically pessimistic souls who wouldn’t recognise good news if it bit them in the face. Others thrive on creating uncertainties and deliberately damaging confidence. In truth, the ink had hardly dried on the G20 statement before investments gurus – so-called by the media – were playing scratchy tunes on the same broken violin, totally out of harmony with Mr Summers.
George Soros, for instance, was quoted as saying, “The US economy is in for a lasting slowdown” and “The banking system, as a whole, is basically insolvent”. We shouldn’t forget that Mr Soros made a fortune on misfortune becoming famous as ‘the man who broke the Bank of England’ in 1992 for short selling over US$10 billion worth of Sterling pounds. If we listened to him we would all be lining up to jump off the nearest cliff.
Several other sell-side analysts surface now and again to dispel positive market sentiment and draw a bleak picture of US banks even though banking shares have gained in recent weeks owing to government intervention, hopes for improved earnings reports and the easing of credit. One of these pessimists wrote a report to the effect that recent actions by the US government to support the banking sector won’t stop loan loss levels from exceeding those reached during the Great Depression.
These uncrowned experts now predict faltering of the rebound in equities and an end to the recent rally in stocks as the markets brace for a seventh straight quarter of declining earnings. Why and where these pundits were hiding, avoiding public statements is anybody's guess? These unscrupulous agents very conveniently time expert statements or their 'spells of silence' to confuse the true average investors and manipulate international stock markets for their personal gain. This has been proved time and again and the innocent investors lose their hard earned money due to the herd mentality as a consequence of the manipulations of so-called experts. What authority do these experts have making unfounded statements that a country like the UK needs aid from the International Monetary Fund?
We live in a world where freedom of speech is cherished and everyone is entitled to express an opinion. That said, investment professionals and influential economic advisors have a responsibility not to rush to make judgements that haven’t been properly thought through or to calculatedly attempt to influence trends for their own benefit or that of their clients. In any event, they should be held to account for what they say. Any conflict of interest or personal gains should be disclosed when they address the public or the media.
The G20 leaders have made an explicit pledge to ensure that regulators and supervisors protect consumers and investors. Perhaps they should have included investment professionals who until now have enjoyed free rein to drive markets up and down with irresponsible predictions. The current situation is unique. Nobody should pretend they have a crystal ball. Those who do, run the risk of creating dangerous self-fulfilling prophecies.
One thing is certain, though. As sure as #spring follows winter, the global economy will emerge from the chill, perhaps even stronger than before. Lessons have been learned and new systems and regulation will create a healthier climate. This is a time for creative solutions and the birth of new industries. Once trust and confidence are resumed, I’m betting that an economic #spring won’t be far behind.