The Pit - IMI Trust

Ben S. Bernanke was sworn in on February 1, 2006, as Chairman and a member of the Board of Governors of the Federal Reserve System in the United States.

Like his predecessors, it is frightening how much this man can swing the economy. The entire investment world tunes into his every speech waiting with anticipation and hope.  However, his power is such is that even when he is not saying something, he is saying something.  His demeanour, the time in which he gives a speech, the length of the speech everyone hope they will read a clue, a sign, a mere glimpse into his plans.

Some camps suggest he wears certain ‘neck ties’ as part of his communication on his mood about the market.  Imagine if, you as a financial planner or accountant, offered advice to a man about his super because you thought the market was going to be flat because the ‘boss on the TV wore a paisley tie - not a good sign, no’.  Would it make financial planning easier, yes, on the decision making front but on the justifying your decision front, not good at all.

Mmm…The State Of The Economy Is Clearly Uncertain! 

Bernanke’s words and decisions could literally wipe out hundreds of billions of dollars of value off people’s and institutions values… overnight!  Could you manage to sleep at night with that sort of power?  I’m sure you could if you had the same salary and bonuses but I didn’t ask that question did I?

One day in May this year, a Sydney newspaper brought attention to the fact that over $25bn had been wiped from the Australian Stock market that day. Throw in the Dow Jones, Nasdaq, Nikkei, London Stock Exchange and you get the picture of the cascading effect of decision making on the economy.  Picture it this way.

1.  Mum and dad investors sell on the word of their planner or accountant
2.  Their planner makes decisions based on the economic trends,
3.  The trends are defined by the marketmakers
4.  The marketmakers base their trend on raw financial data.
5.  Raw financial data is collated by research houses
6.  Research houses get their data by asking industry of their outlook
7.  Industry gets their data but looking at their balance sheet
8.  Their balance sheet is controlled by the cost of their suppliers
9.  Their suppliers costs are driven by a poor crop
10.  A poor crop could have occurred because the underpaid trainee put the wrong mixture of pesticide in the irrigation system.
11.  The trainee was distracted by the fact his girlfriend didn’t love him anymore.
12. The story continues…

Can you see how the economy is driven by forces beyond your control and the interpretation of these forces by the decision makers?  Of course, you can…but can your client?  How do you get your client to understand?