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The ABC of not being scared

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by Peter Switzer

On a day when Wall Street has set us up for a pretty rough time on the stock market after existing home sales fell a whopping 27.2 per cent in the US, it has become essential to put some balance into the economic debate, particularly following a Four Corners report on Monday.

Let me be brutal here — the ABC is the greatest harbinger of doom in this country. During the worst times of the GFC, I couldn’t watch the business reports nor the 7:30 Report, all generally quality acts, because there was an underlying bias to the negative.

As Stephen Mayne once said in an ABC interview, which I participated in around late December of 2008, “we are going to hell in a hand basket”. For my part I argued there were some promising signs but the situation was serious, however I argued we could avoid a recession.

(This was, at least, old-fashioned balanced journalism but that show was run by Geoff Pow, an ABC newsman from the old school. We need more people like him at the ABC — smart, balanced and professional.)

The ‘no recession’ call

I wasn’t alone in being cautiously positive but there were a small number of economists waving the “we could dodge a recession” flag. The group included Craig James, and so the CBA economics team probably agreed, IBISWorld’s Phil Ruthven and Melbourne University’s Neville Norman. Undoubtedly, Herston Economics’ chief economist Clifford Bennett was probably in the positive camp but I didn’t know him then.

Early in March, Bennett called the stock market slump over and press released a big call to buy stocks.

By the way, on another ABC television program at 9am, I was interviewed in late 2008 and asked for my view on how we would fare and once again I said: “The situation is serious but there are some signs of improvement and we could avoid a recession”. The newsreader thanked me with a slightly disappointed and even cynically surprised concluding reference: “Peter Switzer there with a somewhat optimistic outlook”.

The producer of the program had picked the wrong economist!

I don’t blame the newsreader because she gets most of her economics news from the usually very credible ABC and the Sydney Morning Herald, which also was running a very negative view on where our economy and stock market would go.

The bears

One of the country’s biggest bears, Steve Keen from the University of Western Sydney, was given too much exposure because he was good news copy. He tipped interest rates heading towards zero per cent like the US and house prices falling 40 per cent. One day he might be right, though I doubt it, but the problem was there was insufficient balance.

When the big bears were quoted on the 7:30 Report, there wasn’t always an optimist economist such as Craig James there to give the opposite view. This was bad journalism and it misled people.

I know I had financial planning clients to whom my advice was to stop watching the ABC! They wanted to switch to cash a few months before March 2009 because they were scared. They would have missed the big bounce of the market.

Since the Four Corners program this week, which I missed, I have received emails of concern and it means the show must have been one-sided.

Double dip unlikely

Nearly all, but not every economist, admits the US is slowing down but they don’t see a double dip recession nor deflation. It doesn’t mean they’re right but that’s the consensus.

Today’s existing home sales figure in the US is bad but it’s a monthly figure, however analysts on Wall Street today recommended investors buy home builder stocks because they have been beaten up so much!

This morning, I received an email from the team from IHS Global Insight, which ran with the heading: “Not all forecasts are being downgraded”.

On the US, they said the US recession was worse than was originally reported and the recovery will be slower but they underlined that “the risk of a double-dip downturn is low”.

History has shown that a W-shaped recovery where an economy dips a second time into recession is caused by an external shock such as a big oil price spike, a quick increase in interest rates or the raising of taxes.

As Nariman Behravesh, chief economist from IHS Global Insight concluded: “This seems unlikely in the United States in the current environment”.

My final warning is that you watch the ABC with caution and if they don’t look for alternative spokespeople on controversial subjects, just view it as crappy journalism and scaremongering.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Wednesday, August 25, 2010