One can assume a lot of writers for the Sunday papers made a lot of money last week.
Many columnists went into “told you so” mode, so presumably as they had been so confident markets were about to fall, they had put their money on derivatives, betting on market falls.
Don’t be surprised then to see a seat change in the names of journalists writing for the investment pages of newspapers and magazines; no doubt they are already planning their early retirement in the Bahamas.
On the other hand, if you find that the names haven’t changed, maybe there was a lot of wisdom in hindsight permeating the pages of the Sunday newspapers this weekend.
Sure, there were plenty of reasons to expect equity prices to fall. Rising inflation has caused the rate of interest to increase, which in turn has drawn into question the ability of some borrowers to repay their debt. This has led to re-assessment of risk. All of a sudden lenders want a better return on their money.
This was foreseeable and the writing has been on the wall and in these pages for many months.
On the other hand, there are still optimists out there, and they have certain evidence to back up their belief.
For one thing, US earnings in the latest quarter are up 9 per cent so far, valuations remain relatively modest, the global economy is expected to carry on growing at near record pace, and China still has enough money in its foreign reserves to keep the global economy pumped up with credit for the foreseeable future.
For all that, the Dow Jones still managed to fall another 200 points on Friday. That means it has lost 677 points, or ten per cent in 5 days - just under 5 per cent on the day.
Interestingly enough, one of the comments that sparked off the fall was speculation by Bill Gross, manager of the $103.1 billion PIMCO Total Return Bond Fund, and one of the great gurus of the investing world, who said he believed markets were overvalued by between five and 10 per cent.Well, since the Dow fell 5 per cent during the days after Mr Gross’s comments, it would appear the sell off has already returned company valuations to the higher end of what Mr Gross thought was reasonable.
For a detailed analysis of last week’s sell off see Friday’s issue.
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