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We’re up, but why?

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by Peter Switzer

One of the greatest economists ever — John K. Galbraith — taught me a lesson when I interviewed him in 1987 after the market Crash of that year. I called him at his home on Lake Geneva and asked him what was going to happen?

He offered me an answer that taught me a lot about a subject — economics — I have taught at one of the best universities in the world — the University of New South Wales.

“There are those who will tell you that they don’t know,” Galbraith explained. “And then there are those poor fellows who don’t know they don’t know!”

He taught me to be humble about the tough task economists are asked to complete in guessing the future. And the eurozone question marks with their political and economic controversies really make the challenge unbelievably difficult.

To illustrate my point, take China as an alternative example. Here is an economy that is slowing faster than expected and so will cut interest rates and spend more, which will push up economic growth.

However the eurozone has 17 countries, some stupid laws stopping the central bank from doing what the US Federal Reserve could do and this all makes the future harder to predict. And who can predict accurately how the Greeks will vote?

There is confusion, but more positivity exists in 2012 than what prevailed in 2011. That’s why markets were up today, but I can’t say it will last because I don’t know what crazy decisions or comments the European leaders will come up with!

The Dow ended up 26.49 points or 0.22 per cent at 12,127.95 while the S&P 500 index was up 0.57 per cent at 1285.5.

Good news out of the USA helped with the Institute for Supply Management’s index for the services sector rising and the sector still expanding at a better than expected rate.

Right now the G7 leaders are talking and the smarties are expecting something from the European Union and the European Central Bank to help Spain’s banks. Others expect QE3 to be rolled out in the USA.

There’s a lot of negative and positive speculation about the future and this will mean we will see a lot of ups and downs until we actually see really good or really bad news.

Hold your breath and hope for the best!

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, June 06, 2012

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