Bernanke's Botox solution
Thursday, 20 March 2008
By Colin Benjamin
Way back at the end of January, this column suggested that today would see the exposure of the market to the realities of the traders who have brought shame to the speculators and so-called financial big end being bailed out by a coalition of central banks.
As late as last week it looked as if commodities might be a hedge against the short-long speculators manipulating the equities market but now we are seeing that the smart money is pulling out of gold (*heading down by record amounts) and oil (inventories heading up as supply and demand replace speculative plays).
Small and medium businesses in Australia and people with self-managed funds should delay converting cash into either equities or commodities for at least a fortnight to see the extent that the short-sellers have decided to go back to an investment strategy based upon fundamentals as opposed to being flim-flam merchants self promoting advice.
At last we are getting evidence that the triple T standard - truth, trust and transparency - is being recognised by the regulators who have turned a Nelsonian eye to the non-productive sector.
In Britain the Financial Service Authority (FSA) at last launched an inquiry into the feverish speculation and scare mongering that has destabilised London’s stock market to such an extent that the Bank of England was forced to intervene to protect the HBO from a deliberate and sustained set of short-seller promoted rumours. As late as this week there has been a further attack on another of the Uk's leading banks - Barclays - which is still to respond.
Announcing the FSA inquiry, Sally Dewar, the watchdog’s managing director for wholesale and institutional markets, said: “There has been a series of completely unfounded rumours about UK financial institutions in the London market over the last few days, sometimes accompanied by short-selling. We will not tolerate market participants taking advantage of the current market conditions to commit abuse by spreading false rumours and dealing on the back of them.”
In America the SEC is examining the collapse of Bear Stearns probing whether false or misleading information was disseminated to investors to manipulate markets. The SEC has opened an informal probe into, among other things, potential insider trading and market manipulation by Bear Stearns ahead of the fight over who gets the staff and who gets the shell of the firm. The regulator is also looking at “conduct and statements by Bear Stearns before the public announcement of the transaction with JPMorgan”.
On Wednesday the SEC finally reminded market participants of the repercussions of manipulating markets echoing the FSA’s warning to traders in London that spreading rumours and trading off the back of them constituted market abuse and is a criminal offence.
Expect to see the gnomes at the big five moral hazard merchant’s push for greater truth, trust and transparency in the trading markets of the world on a scale not seen since the depression.
By the middle of April the RBA will hopefully have had enough of jumping all over lending to companies outside of the mining boom states, the Fed will have collapsed the US$ a little further and the European banks will be starting to encourage growth without being so scared about inflation. Then it will be time to make some longer term business and market expansion plans into the BRIC economies and promote a new international expansion drive for small and medium enterprises who have the right contacts.
Every week at about this time the Futurist tries valiantly to believe all the market optimists who are now saying that Bernanke’s latest gift to struggling mortgage brokers is the missing silver bullet – or at least the smoking gun. But pumping in liquidity has the same effect as botox injections – it makes a good cosmetic look but only provides a short-term face-lift and sets us up for a return to turn-of-the-century conditions.
Dr Colin Benjamin is Entrepreneurship and Strategic Thinking Consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Contact: CEO Dr Jane Shelton.
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