With the euro under so much pressure, what's driving investors' optimism?
I was shocked when a hastily-assembled and blurrily-explained EU bail-out package for Greece somehow did the trick of reversing sliding global stock markets a week or two back.
Even on the day it was launched the rescue vessel seemed leaky, and now it looks riddled with holes. I never thought German taxpayers would fancy bailing out the profligate Greeks, and with deputy prime minister Theodoros Pangalos encouraging them by making Nazi jibes, I bet they fancy it even less now. Talk about adding insult to insolvency.
I can't imagine global investors believe this crisis can be speedily resolved, but that didn't stop them ploughing back into shares (although they are now beginning to have second thoughts).
To me, this strange behaviour begs the following question: are investors tough, blind or crazy?
A sea of troubles
Greece isn't the only troubled nation weighing down on markets. There is Spain, Portugal, Italy and Ireland, and the rest of the eurozone, for that matter, where growth is stalling. We know all about the UK, of course. The US and Japan also owe a bob or two. Hamlet was right when he moaned that troubles never come as single spies, but as battalions.
But all it takes is one or two pieces of moderately good news, and investors cheerfully join battle again. I think you have to be pretty tough to invest in stock markets right now. Or blind. Or crazy. So which one is it?
Doom and boom
Are investors tough? We are a fretful bunch, forever climbing a wall of worry, but our default state is optimism. Look how quickly we recovered from the autumn 2008 debacle, cheerfully piling into any old underpriced trash we could find. You might call it greed. I prefer to call it pluck and coolness under fire.
Feel the burn and do it anyway is a tough mantra, but one that many investors follow. And you need to be tough right now, with George Soros, Jim Rogers, Dr Marc Faber (Dr Doom to you) and just about every other billionaire financier predicting a meltdown in the pound and double dip global recession.
Anybody putting money into stock markets now is tough as old boots.
Cole not gold
Or maybe they are just blind? Can't you see what's staring at you, right in front of your eyes? Governments around the world have pumped hundreds of billions of pounds into their economies, to little effect. After blazing madly away with fiscal stimulus packages, nearly all their ammunition is spent. The Bank of England has printed £200 billion through quantitative easing, and is now hinting that it will fire up its presses again, because that unprecedented printing spree wasn't enough.
The eurozone is on the brink of chaos. A host of countries are trembling on the brink of sovereign default. Many people believe the US can't service its debts. California is sinking into the mire. Nobody knows how Japan services its mighty deficit. China is in protectionist mode. People are worrying about peak oil again. And the England football team is heading to the World Cup without a recognised left back.
It is a right old mess.
So what are investors doing? Some are becoming more defensive, the rest are blithely assuming it will somehow turn out okay. So yes, there is no question that investors are blind. Nobody can see the future. Nobody knows what will happen next. We are just groping around in the dark, hoping to find a way forwards.
In time, we usually do.
Mad world
Anybody investing in the stock market right now has to be crazy. Mind you, you would have to be equally crazy to dump your money in a high street savings account paying 0.18%, when you find a reasonably solid company dishing out a 5% dividend instead. These are crazy times. Everywhere you turn, it's madness.
So yes, investors have to be tough. And yes, by necessity, they are blind. But are they crazy? A little bit, but not as much as you might think. We're sane enough to understand that the world has endured economic crises before, and always recovered, typically at a faster lick than many people expected.
We're sane enough to see that stock markets may be shaky, but the alternatives aren't much better. And finally, we're sane enough to remember that real investment opportunities come when all sensible and right-thinking people are saying that you would have to be crazy to invest right now.
So yes, investors are tough, blind and crazy. But not completely crazy.
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