Tuesday, April 16, 2024
 
 

Clear Direction or Misleading Headlines

UK falling into recession. Is this the last blast of a financial “trumpet” spelling doom and despair?
David Monaghan on Unsplash
View of the London bridge.

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In a world full of stories all noisily striving for attention, the individual importance of some of them will be exaggerated through scary headlines and dramatic hyperbole. Just think of some of the current headlines about the horrors of war in Ukraine and the Middle East. But already coverage of Ukraine is starting to ease off, as the next story starts to cast a shadow over the previous one.

Then there is the way the truth is interpreted for different audiences. For example, those reading about Mr Putin’s “Special Military Operation” are his domestic audience, and contrast strongly with what the rest of the world is hearing, highlighting as they do Ukrainian corruption, its Nazi supporters and yet more Western interference in other nations.

However, the drama and thrill of school boy war stories may be fascinating to the news junkie, but only at the expense of other less sparkling stories. Take economics. Such a subject may well appear dull and unimportant, in comparison to these dreadful tales of conflict, but they are every bit as important.

And there is a vital need for these stories to be communicated effectively. There are some lazy journalists who will just write the headline and move on without thinking about its wider implications. But this can be damaging. On the subject of economics, what can be done to give a proper interpretation of the lasting effects of some financial and relevant market data? Because that is the key way to attain your goal of economic and financial confidence.

Take a current example: the most recent data about the UK falling into recession. Is this the last blast of a financial “trumpet” spelling doom and despair? (The key word here is of course “Trump”)? Or just one of a number of indicators which many would think are more relevant to the overall picture?

The news about the lack of UK growth is not new, but the wildly over-the-top reporting by certain media outlets about recession will subconsciously erode our confidence. The effects of that are quite simple. Lack of confidence will curtail our enthusiasm for more spending as we draw in our financial horns. It will also apply to companies who may cut back investment in new plant.

Then investors (be they private or corporate) will hunker down and wait for the storm to pass. And on top of this, news is now recorded, filtered and then even rewritten by Artificial Intelligence (AI). So some key elements are being taken over by systems and machines.

And short term instant data can create instant and potentially dangerous outcomes. Take the dangerous effect we saw in the immediate impact of the disastrous Liz Truss premiership, and its effect on the bond markets. The result was not just short-term vicissitudes domestically, but far more importantly, the loss of international confidence in the UK, which could be seen in plunging market losses, with short term costs to the UK reflected in the price of our bonds and other assets.

So, what can be done? First, there should be an emphasis on education (not just for school pupils), to encourage an understanding of key statistics and words. Secondly, we should not just pin our hopes on simply one item of quarterly data, but rather look for trends and directions. Thirdly, we should be encouraging longer term opportunities for investors and corporates. And this does not mean government largesse 12 months before a General Election in the UK.

That sort of stability may sound dull, but I am very keen on seemingly dull information being communicated in a realistic manner. This creates an air of “steady as she grows.” Some will wish to sail their boats to through the storm to brave higher risks (or even sinking) in order to seek greater wealth in the aftermath: I, however, will be in the slower boat and wait for the storm to pass, which will then allow me to sail in calmer times and actually reach my destination.

Which means the data about the UK moving into recession should be noted – and ignored. Short term headlines only encourage short term reactions and can lead to losses. The measure I wish to see is that of confidence across the economy, from private investors to corporate behemoths.

Sadly, politicians will nearly always look to the short term and towards the next election. What government can do here is not throw around our money (it’s not theirs), but provide an encouraging backdrop of incentives through the taxation system (i.e. longer-term benefits for longer term investment).

So, the bigger picture is this: the global economy has been damaged but survived following the disastrous impact of pandemics, wars and untrustworthy leaders.

Prepare for short term shocks, but believe in longer term strength, security and confidence.

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