Reflecting on the Fed press conference on Wednesday, one has to wonder if it comes as a slight disappointment to them that they still do not feel confident enough in the sustainability of the US economy to predict when to start raising US interest rates. This is despite 5 years of almost zero interest rates and billions of dollars worth of bond purchases. It could be that we live in such an indebted world these days, with both governments and individuals relying on credit to survive, that the new normal for the global economy is low to zero interest rate policies by central banks to keep the whole thing ticking along.
Regular readers will know that we focus on market sentiment because the many years have taught us how important it can be to the direction of capital markets. We often remark that any market tends to move in the direction that gives investors the most pain. The reluctance of the retail investor to invest in equities has been well documented since 2008. A recent survey from Capita Asset Services seemed to indicate that there may be a change in the retail investor sentiment. The survey claims that the amount of money private investors have in the stock market is only a few percentage points away from the level in 2007. It is a common held belief that when the retail investor is getting in, the professional investor should be heading for the exit. Retail investors characteristically buy high and sell low. Commentators and investors alike get wrapped up in the level of the stock market particularly when it is close to record highs. The Telegraph points out if the equity market falls retail investors will once again lose out. To state the obvious, if you own any asset and it falls you will lose out. The same is true for bonds and property, but the fixation is always with equities. Buying equities in August 2012 would have felt disastrous, by the start of the following year you would have wondered what the fuss was about. The problem with equities is not buying at the wrong moment, it's having to sell at the wrong time.
In Friday's blog we also try and reflect on stories that may not be directly related to global markets. CNBC ran a news article today that Beats headphones, the favourite of many a celebrity including most of the worlds footballers, are to be banned from the World Cup. The reason behind this decision is that Sony, as the main sponsor, is upset to see virtually every footballer in the world Cup walking off a bus with Beats headphones wrapped around their neck. According to Forbes, Sony pay FIFA roughly $50m a year to be one of their main sponsors. You may have thought it would have struck someone within Sony to issue every player in the World Cup with a set of Sony headphones. That conclusion did not need someone with an MBA to come to, just a bit of common sense.