Who needs Pennywise
I must admit I have never been keen on Halloween. I think I have too vivid an imagination to watch films or read books designed to scare the bejesus out of me, and supporting Aberdeen is enough trauma for anyone to deal with.
It probably doesn’t help that reading the financial news every day makes a Stephen King novel seem like a Mills and Boon. I mean for the last year and a half we have been told that, like Pennywise, the recession bogeyman is going to jump out at us at any moment and send us all to the poorhouse.
We have also had to deal with the resurrection of the inflation demon which we had been told had been killed off. In fact, it is only a couple of years since we were told to be petrified of its demonic cousin, deflation!
No wonder investor nerves are shot.
I suppose this is nothing new. I mean let’s think of some of the things we have been ‘told’ over the last decade and a half.
In early 2009 it was written that the equity markets were ‘dead’ (if you want to read an Informing You I wrote at that time click below). Imagine if you had believed that scare story and stuck all your money in the bank at that time. Now that would have been scary!
The falls in interest rates that we have seen since 2009, where they ended up at zero, was reported as a good thing but in fact was the opposite. It meant savers got no reward and borrowers loaded up on cheap debt which helped push house prices up to levels where it has become virtually impossible for those not on the property ladder to get on it without help.
I won’t be one of those people that goes on about the rate of their first mortgage compared to today’s rates (it was 16% ;-)), but historically an interest rate of 5% seems about right. It is not so high that it restricts growth, and neither is it so low that central banks can’t cut it if they need to stimulate the economy.
Also if property prices fall or more likely simply do not rise for a number of years, as was the case in the 90s, is this a bad thing? I may be out on a limb here, but I don’t think so, as they need to become affordable for the young and a reset is needed.
Now that we have interest rates back to a more normal historical level, we are told this is terrible and the cause of our ills. Really? Tell that to the savers that are now earning interest and the government that will make billions taxing it. As I have said before there are more people that are savers than borrowers, so I bet that for most people having more normal interest rates is a plus.
With all the talk of recession surely the latest GDP figures announced in the US must be good news? Twelve months ago you would have been laughed at if you had predicted year on year growth of 4.9%. Sadly the news was greeted with dismay as it means it is unlikely there would be cuts in interest rates any time soon. You can’t win.
For decades we survived with interest rates far higher than they are just now and life went on and wealth continued to be created. This time will be no different. Markets will get used to the new normal and things will stabilise at some point.
You must remember this as you will not be reminded of it in the media. As Stephen King has shown, fear sells and the media know it.