What we are seeing in the Australian economy can be better explained by psychologists than economists.
The mass of foreign debt gets bigger. There have been two months of uncertainty over the Budget and several more over Mabo. The Government’s industrial-relations “”reforms” amount to next to nothing. The mass of jobless remains constant. (I refrain from calling it a jobless queue, because a queue presumes that one’s turn will come and a bus will arrive or fish and chips will be served.) And the dollar behaves like a broken yo-yo _ it only goes down. These things would normally add up to business gloom.
Yet the share market has been on a steady climb for nearly a year. At the end of 1992 it was at a post Gulf War nadir of 1400 points. It has now busted 2000 and keeps on climbing.
It must have more to do with the forces of greed and fear than the forces of supply and demand. Or more correctly, the irrational, erratic forces of greed and fear are driving supply and demand.
The greed and fear this time, however, appear more tempered than in the 1929 or late 1987 crash or the heady booms of Poseidon or early 1987.
Let’s take fear. The absence of fear is essential to a rising market. The litany of present bad tidings would normally damn the market to flatness. The difference is the mums and dads shareholders who have joined the market by the suburbsful in the past year. They do not run on adrenalin like screen jockeys, nor to they hover over company reports and statistics. Most of them came in to the market because Ian Leslie, the 60 Minutes reporter, took away their fear. Earlier this year his trusting face urged every Woolies shopper in thousands of supermarkets to buy shares, and Woolies has been around for since we were kids. Trust. No shonks. It was much the same as the Commonwealth Bank last year. Woolies has 300,000 shareholders and the Commonwealth 200,000.
The Australia Stock Exchange says mums and dads lifted their share of the market to 30.1 per cent as at December last year from 20.8 per cent in June 1989. And it has climbed since.
They have changed the “”fear” profile of the market. Fewer are twitching at every Bureau of Statistics release. They are not high rollers.
On the greed front, too, the mums and dads are a different breed. They are not excessively greedy, so they do not dance about the market for the quick kill. Their greed is different. They are more likely to be mug PAYE taxpayers. For them, the marginal tax rate of nearly 50 per cent is a reality, not an option _ like it is for those on an income of more than $1 million who pay on average less than 30 per cent tax because of their avoidance schemes. This means the mums and dads are less likely to cash in on their profits because they will lose half of them immediately in capital-gains tax. Better to wait until retirement, illness or redundancy causes an enforced cut in their marginal tax rate and therefore higher real profit.
Their lower propensity to sell tends to keep the market up.
The Commonwealth Bank and Woolies floats which were done through thousands of suburban banks and supermarkets brought a wider and different group to the market because shares could be applied for at a familiar place _ not at unfamiliar stockbrokers. And there was a flow-on effect. The first share purchase was easy, the price went up, so this group of people invested again in other shares, especially as bank interest rates were low.
Why did not this happen before? Computing has something to do with it. Cheaper and easier-to-use computers and programs that run large databases have made running a share register of 300,000 easier. Leaving aside the horrific loss of trees every time the annual report comes out, the value of a large share register probably outweighs its cost. Guess where those 300,000 share-holders do their grocery shopping?
Sharemarkets will always be more volatile than other investments, but it appears that the character of the Australian market, with its different fear and greed profile, might become more stable and less prone to the sudden sell-off in a plunging market. However, I am not an economist. My fear-and-greed theory is homespun drivel compared to sharp analyses of PE ratios and percentage yields done by economists. And who wants to be told that the future is going to be essentially dull?