Investment Market Reaction tempers
Opening scene setting
Investment market reaction to policy settings is not unusual. Investors initially showed disdain in their reaction to asset pricing when fiscal policy settings wee deemed inadequate at the time of the GFC.The following article, published in 2008, reflected the frustration of investors with the US Congress. The author is St George Investment Solutions. Investor concern was, at the time, extreme and hasty. ‘Public opinion’ (expressed through the investment markets) forced the US Congress to act. They did.
What happened…
“Investment market reaction to the policy inadequacy of the US Houses of Congress overnight shows a high level of dissatisfaction – and frustration – on the part of investors. This article argues that more is happening. Investors need to be patient. The US Government’s financial rescue package “Troubled Assets Relief Program” (TARP) failed to attain approval by the US House of representatives overnight. This has had a significant impact on global financial markets overnight. The voting was 228 against, and 205 for. Equity markets have had sharp declines while bond markets (Sovereign Government Bonds) moved sharply higher in price, benefiting from a flight to safety. However, it is important to note that the TARP Bill is not dead. Both Houses (House of Representatives and the Senate) are likely to meet again this week to consider a revised package. The US House of Representatives only needs an extra 12 votes to secure the Bill, so this means there is still scope for it to go through, with some modifications, later this week. (Editor’s Note: The Vote eventually passed. President Bush signed the Bill into law.)
How it progressed…
Whilst the US works on the necessary revisions to the Bill, world markets are likely to go through a turbulent few days. What we are currently experiencing is a period of extreme market volatility. Whilst uncertainty remains in the US, its impact will be global. This will further reinforce the frustrated investment market reaction to the policy inadequacy of governments. The priority for the authorities is to minimise and manage the systemic risk to the global financial system. Stabilising financial asset markets will generate greater investor confidence and allow the global economy to regain much needed traction. Given the magnitude of market dislocation, global authorities are in the process of using all avenues such as easing fiscal policy, easing monetary policy, massive injections of liquidity to the financial markets, bailouts and direct market intervention to absorb troubled assets as part of their coordinated initiatives to alleviate the pressures that have been building in the global financial system over the past few months.
Historic confidence
The successful use of fiscal policy in the past, naturally gives Policy makers the confidence to introduce significant fiscal policy initiatives this time around, given the magnitude and depth of the prevailing crisis. The most recent use of Fiscal policy in a significant scale was in Japan, after the property market collapse and the stock market meltdown in the early 90’s prompted fiscal policy initiatives of an unprecedented scale. These types of policy initiatives help first to stabilise financial asset markets by creating domestic demand and reducing investor risk concerns. Such policy initiatives are good for growth assets such as equities, in the medium to long-term. It is important to emphasise that at times such as this, investors should avoid making irrational investment decisions based on heightened market volatility, fear or uncertainty in their reaction to the policy inadequacy of governments (whether those inadequacies are real or perceived). History proves that market conditions such as these give long-term rational investors an excellent opportunity to accumulate assets that provide them with superior medium to long-term returns.
St George Invvestment Solutions: Disclaimer (extract)
Whilst every effort has been taken to ensure that the assumptions on which the outlooks given in this publication are based are reasonable, the outlooks may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The information in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. To the maximum extent permitted by law: (a) no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up-to date or fit for any purpose; and (b) St.George is not in any way liable to you (including for negligence) in respect of any reliance upon such information or advice. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Current as at 30 September 2008.
ContinuumFP actions
As part of our concentrated service to clients during the GFC –
- we brought articles of direct relevance to them,
- keeping them informed as to progress with various initiatives employed to minimise the effects of the GFC:
they were posted and notified to clients promptly. We stayed engaged with our clients throughout that rather traumatic period.
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(This article was originally posted by us in September 2008. We occasionally update/ refresh it, most recently (for SEO purposes), in August 2025.)