It has been quite interesting to observe the way the mainstream media has portrayed the ructions in financial markets that are being felt across the world. Over here in the UK, I swear I have seen the same German stock trader splashed on the front page of two different newspapers today, with a slightly different pained grimace on his face in each instance. Each photograph featured, of course, a conveniently placed graph on a screen in the background, showing a jagged line thrusting frighteningly downwards towards a sub-zero abyss (in reality, a drop of 5-10%). Some of the newspapers have gone positively apocalyptic with their treatment of the crisis. Witness The Independent’s front page today:
Of course, for sheer hysteria, you can’t really go past this Google Ad hosted by Fairfax, predicting the demise of the United States in 2008:
While it is a slightly disturbing and concerning time to be a shareholder (e.g. probably most of us in Australia with some form of superannuation), it goes without saying that some of the mainstream media outlets are engaging in irresponsible hyperbole, and unnecessarily whipping up fear about the global economy. As Paul Xiradis from Ausbil Dexia comments in this article, what is primarily driving the purges of stocks is fear. Animal instincts have well and truly kicked in. The average trader/punter is not in the position to make a truly learned assessment of whether the global economy is about to tank in a big way, or whether this is just a phase. Quite to the contrary, what we are seeing with the global markets is arguably a mass of instinctual reactions to what is being reported and regurgitated in the media, rather than a considered assessment about how the global economy is trending in the long-term.
One thing, of course, is guaranteed; when the price of the world’s stocks has dropped just low enough, money will return to the markets in a rampaging flood. The FTSE is already showing signs of this reactive trend back up, with a late rally today. It is pretty much certain that if fear is the primary force responsible for the market results over the last few days, than greed will be the force that fuels a restoration of relative stability. Once the smoke has cleared from the cinema that seemed at one stage to be burning to the ground, we’ll all notice a few (charred) fat bastards sitting up the back and waiting for the movie to resume, just so they can get their money’s worth out of the exercise.It’s quite frankly strange and disturbing that the world should rely so much on greed to ensure that global financial markets are stable in short-term timeframes, but I suppose that is modern day, loosely regulated capitalism for you.