Saturday, September 20, 2008

The End of the Beginning

Summarising the day's developments on the RTE News last night, Anne Doyle explained that the ISEQ had experienced its largest ever daily increase due to the Minister of Finance Brian Lenihan's reassurances about the security of bank deposits. This is possibly the most stupid thing I have ever heard uttered on RTE (I'm not calling Anne stupid, btw, she was just reading the nonsense written on her teleprompter.)

What kind of delusional narrative fallacy grips the news team at RTE anyway? To seriously suggest that the less than convincing utterances of an arriviste finance minister should be the primary, if not exclusive driver of multi-million euro transactions on the Irish stock market is a sign of just how little the folks reporting the news actually understand about what's going on. But it does serve one purpose: it panders to the re-assuring fantasy that the Government is in control and knows what is doing (and is even doing it successfully). Re-assuring but, regretably, completely divorced from reality.

Probably the biggest driver of yesterday's extraordinary bounce in the ISEQ (and the FTSE and the Dow Jones) was the collective decision by regulatory authorities in the US, UK and Ireland to ban short-selling of financial stocks - forcing those holding such positions to buy financial stocks to avoid regulatory punishment. Probably: but I'm no expert on the nuances of financial markets though I reckon the simulataneous surge in the US, UK and Irish stock markets had rather more to do with this than anything else. Unless the RTE news team think yesterday's largest ever daily increase in the FTSE 100 was also due to Minister Lenihan's utterances? Quite possibly they do, God help us.

Nevertheless, stepping back from the turbulence of the past week there is a sense that a period of extraordinary change is coming to an end (starting way back in August last year).Though I feel it is the end of the beginning rather than the beginning of the end. Not only does more financial turbulence lie ahead, so also does the full impact of the economic downturns in the developed world now under way that have yet to reach their nadir. The 'bottom' is some way ahead, probably towards the middle of next year (being as optimistic as I can whilst reading the economic tea leaves).

I think Edmund Conway calls it right in today's Daily Telegraph when he forecasts a leftward lunge in politics in general, and economic policies in particular. A pity because, despite the excesses and consequences of capitalism, a free market is still the only way to deliver wealth and well-being to the world's poor. This week Ireland was ranked 10th in the world for Economic Freedom according to a Cato Institute's report (a different measurement of economic freedom ranks us 3rd in the world). Whatever the precise measure, Ireland's economic success in recent years has been due to free markets and entrepreneurship. Our current problems are more the result of politicians meddling in the housing market (on behalf of the construction industry lobby) than with the workings of free markets. RTE will no doubt continue to attribute our economic and financial fortunes to politicians, but I'll be betting on the private actions of business owners and their staff to see us through the difficult times ahead.


  1. They're always at this.

    No reference to the fact that this was an increase from a disastrous pit the day before. The net increase was much more modest.

    You're right about the cause.

    It annoys me that in the regular course of events they report index changes in points. This is OK for the professional investors who are always aware of the base, but I need it to be expressed in percentages to figure if it has any macro significance.

    Just discovered your blog. Will read with interest.

  2. Could this be some sort of response to the 'panic' that Joe Duffy's Liveline show caused last week in which RTE received a 'lash' by Brian Lenihan.


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