Risk & Economy » Regulation » Editor’s letter: Contrary to expectations

Andrew Sawers

In matters to do with markets, I’ve always been something of a contrarian.
Crueller readers will take that to mean that I’m usually wrong. The more
generous of you might think that the contrarian is someone who is right ­ but
far too early. I’m reminded of the 1980s-era City doom merchant who correctly
predicted all 17 of the last three bear markets. Having recently read his
memoirs, I’m comforted by the prognostications of Alan Greenspan who, in 1996,
thought that equity markets were demonstrating “irrational exuberance”. He was
right ­ but they continued to demonstrate such traits for another three or four
years before finally tumbling.

Having said all that, I’m going to take a punt. As the pub talk turns to the
question of whether we are going to have a recession (maybe I go to different
pubs than you do), I think we’re going to avoid one. Obviously the signs aren’t
good. It has taken about two months for equities to lose all the gains they made
in the previous two years, which must tell us something (“Yeah: ‘You’re

The tens of billions that banks are writing off has a whiff of funny money
about it, divorced from the real world apart, perhaps, from the country-sized
bonuses that traders may have to forego. And I presume that, if Northern Rock
finally hits the wall, Alistair Darling isn’t going to try to get all his money
back from taxpayers in one fell swoop.

Obviously our economics columnist Dennis Turner talks about these matters
much more lucidly than I do. He argues that the UK, the EU and the US are all in
for a period of below-trend growth. Our new IT strategy columnist, Robert
Jaques, is clearly a wannabe economist (he’s been called worse things), for he
expects a sharp reduction in spending on major IT projects this coming year.
Having said that, his list of exceptions ­ security infrastructure, governance
and regulatory compliance projects ­ is not unimpressive, so there’s still hope.

The action by the Fed to spring a rate cut on the markets ­ bigger and sooner
than expected ­ could be seen by some as a panic move, but brought to mind the
sort of prompt, decisive action ­ a kind of ‘financial shock and awe’ ­ that
characterised the Fed’s reaction to 9/11, the Crash of 1987, the tiger economies
crisis and the implosion of the Russian economy. Hence, even though the Bank of
England shows no sign of following suit, I think we’ll just make it. But I’m
sure your budgets will rarely be more than an arm’s length away from you over
the next few months.

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