Sometimes It’s Just Emotion

There has been a lot happening already this year. We have seen the usual mix of property outlook forecasts. On the share market front however, it has been all action. The correction in January and early February may well have run its course however.

Often I talk about the transference of emotion from one market to another. A lot of the stock market decline we just had, was purely linked to the fact that oil was going down. Yes, I know, that should be good for the economy overall, and therefore good for the stock market too. But on Wall Street two things were happening, and Wall Street still drives global sentiment, though China is on the rise.

Firstly, there is always their ego need to feel they are smarter than everyone else. The reverse is true, but that’s another story. So in the desperation to be clever, they decided that lower oil was in fact bad for the economy and stocks. To justify this thinking they kept talking about the previous high correlation between global growth and the oil price. They argued that lower oil meant a slowing economy. There is a high correlation, but it is because global growth drives the oil price. Not the other way round.

You will be happy to hear global demand for oil continues to go up, because the global economy is actually strong.

Secondly, there was just that frail human response of emotional transference. That is, if there is fear in some people, other people get scared too. It is actually a great survival instinct to have in the jungle, but only in the jungle you are actually in. Today with instant communication of everything that is going on, we are starting to see fear in one jungle, causing people to start running in a completely different jungle - without really knowing why!

Basically, that is the whole story as to why stocks fell at the start of this year. Once people figure out they were running without there actually being any real threat, they will all be go back to business as normal. When that happens, stocks will fly higher again.

The reason I am telling you all this today, is that it indeed looks like we have reached that point in global stock markets at the end of last week. So we can fully expect the Australian stock market to move higher from here too.

The trick for the property market, is that as stocks rise, there will be a general transference of a fresh bout of positiveness to the economy and to the property market. This could happen very quickly indeed. Over just the next 1-2 weeks. For the moment property buyers generally are exhibiting some caution. This is a great time to take advantage of that.

Clifford Bennett