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By Malcolm Stacey | Wednesday 7 February 2018
Hello, Share Monkeys. As this stupendous website’s raging bull, I feel it my duty to put the recent Wall Street-induced crash into perspective. In my view, based on long experience, there’s no need to be concerned. I’ve seen it all before - many times.
First of all, the big dealers cannot make much money if share prices keep rising. Therefore, they are always ready for a crash. They sell their shares at the first inkling of trouble (and they have far more sophisticated tools to foresee this than we armchair tycoons). Then they buy them back at the bottom. So there is a vested interest in seeing shares fall. And any excuse will do.
Now I believe the main reasons the journos and analysts give for the current crash don’t stand up all that well. It’s said that our American cousins are worried by higher interest rates, mounting inflation and rising wages. Let’s take those ‘perils’ one at a time.
Firstly, interest rates are still very low. So companies with debt are still getting a bargain. Higher interest rates also put more spending money into consumer’s pockets, which will increase profits.
Mounting inflation is next. Well, this means firms can charge more for their goods and services. And if customers complain, they can cite inflation as the excuse.
Thirdly, let’s look at the threat to share prices posed by higher wages. This means companies will have to pay more to workers, eating into profits. But fairer remuneration puts more money into the consumer’s pocket. And so sales go up.
So three arguments for the present crash are perhaps more likely to assist companies issuing shares than hinder them. So why the crash? Because, as I opined at the outset, big dealers need a crash occasionally - to make more money. Also, many trades these days are done by robots, which ‘panic’ when prices fall, causing more selling. So then the downward movement is to blame for the fall, not necessarily economics.
For all the reasons above, I will not be selling shares in this selling frenzy. Though you must make up your own minds because things could get worse before they become better.
And now it’s time for the Punter’s Return.
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