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Gloomy prophecies are rearing their heads again. Wrongly!

15 October 2013, Column

Now that we have five years of various sorts of crisis behind us, over the last few quarters more and more economic indicators have moved back into the black. Over the same period investors have driven equities to new heights. Confidence that we are moving into better times is still rising. But even so, the attention in the media is more on negative forecasts and visions.  At first I attributed this to the principle that “bad news sells”. But in fact there is a strong feeling that people are afraid to admit that things are getting better. A few arguments why the doom and gloom merchants will shortly be coming to grief in the markets.

“Equities have just gone up for the 55th month in a row, which is too long." Since when has the number of months that a stock has been rising been relevant? Maybe this sort of figures is interesting for the statistics of CNBC and Bloomberg TV, but for investors I feel they are irrelevant.

“Fed chairman Ben Bernanke has delayed the 'tapering' (cutback in the bond repurchasing programme or 'QE')." The conclusion that is drawn: so the American economy is in a far worse state than they told us! For me that is missing the point by some way. I recall that at the time Bernanke only said that the Fed was considering (!) cutting back QE since the American economy was starting to develop better. At a more recent press conference Bernanke said that this was not yet the moment for it. The commentaries do not lie and neither does the response on the equity and bond markets. But do we not already know that the market anticipates developments, so it can also then react with disappointment?

"October, the month where we know that substantial readjustments have always happened." Indeed, but substantial readjustments have also happened in other months. It is pretty much the case that it depends on the Q3 figures for economies and businesses whether October is a good or bad month.

“The crisis in the euro zone is still far from over!” Maybe, but if we were to wait until everybody had finally agreed that the crisis was over, then the stock markets would already have risen sharply. It’s a matter of signalling a trend on the basis of which a changing economy can develop. But the markets will not keep rising when the underlying economy begins to stabilise or weaken. And vice versa.

Now that the USA is showing a recovery, and in the euro zone we can see the first signs that the situation is at no longer worsening, it is certainly worth continuing to invest in equities. The focus here is on the medium-long term and not on day to day fluctuations.
 


Macroeconomics


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