Are you wondering why the stock market is sliding so fast – or why noone is really talking about it? It is almost as if all the pundits are closing their eyes and covering their ears like children who think it might all just go away. All those big shots who predicted big gains for 2014. Since financial markets are dangerously stretched they should know that it was never a case of “if” it was going to happen and more of a case of “when”.
After a healthy start to the year, recent weeks have seen steady declines in all the world’s major indices. The price of oil is crashing, lower than it has been for two years – something that happened in 2008 just before that financial crisis reared its head.
There are worries over conflicts in the Middle East and Ukraine and the threat from Ebola is affecting sentiment. There are concerns about the German economy. In fact stocks there have already dropped about 10 percent since July.
Greece is back in the spotlight over concerns about the stability of the government and its bailout programme triggered a massive sell-off in stocks and bonds.
The American VIX index, which measures volatility, hit a two year high. All of that spooked the UK’s blue chip equity market which plunged to a 15-month low, wiping £46bn off stocks. Phew.
I think the “why” is straightforward. Markets and economies around the world have been flooded with central bank cash and credit created out of thin air, distorting interest rates, inflation and share prices. All that has made it look like there has been genuine wealth creation and growth. Logic dictates it can’t go on forever.
Earlier this year, think tank the Bank of International Settlements (BIS) warned that rock-bottom interest rates had also led to ‘worrying’ signs of unsustainable growth in property and credit markets in some countries.
Now they predict worse – that suspiciously low levels of volatility in the markets seen this year suggest a lack of liquidity that could trip up investors who assume they can dispense of assets when a sell-off begins.
The way I see it there have been clues flashing like neon signs that something has to give. Surely there is only so much quantitative easing the global economy can take. Central Banks can’t save the markets now.
How the other half live
As the markets tumbled, news just in for those whose fortunes fare well.
If you were shrewd enough to short the market this week and have enough cash to spare to bag a private jet, news from VIP Completions is for you. They have designed a swish custom interior for the new Boeing Dreamliner, with a world first: a bubble wall in the cabin.
The flowing water display will be backlit with coloured LED lights which the owner can change using their smartphone. Other design details include Swarovski crystals that twinkle like stars when the lights are low.
The estimated cost? Around $100 million on top of the $257 cost of the jet. I’ll think about it…
Where are Tesco’s winning women?
The bad news keeps on coming for Tesco. The supermarket giant has asked three more executives to leave their posts as the fall-out continues from its £250m profit guidance overstatement. That takes the number of suspended executives to eight.
Tesco’s share price has plummeted 50% in a year as falling sales, boardroom reshuffles, and increased competition from rival supermarkets such as Aldi and Lidl have unnerved investors. Their crisis management team is no doubt in overdrive.
So note this. A couple of blogs ago I mentioned a talk from a Tesco executive at a conference I was hosting. What I didn’t write about then was the corporate video that formed part of his presentation. It was designed to explain Tesco’s quest to give customers the ultimate shopping experience, showcasing new shop-fits and in-store concepts and with interviews from top executives.
Yet I was completely distracted from their key message because every one of those executives was a white, middle-aged (or older!) man. My automatic instinct was that this was a company set in its ways and out of touch. So much is in the small details, especially when it comes to wooing customers – not to mention investors. Tesco’s energy may rightly be focused on the Financial Conduct Authority now, but as they rebuild their brand, remember, every little helps.