I start to see the changes in the financial market today as primarily based on expectations. The media reports news everyday about conferences where professionals in the financial fields give their forecast, news about wars and political conflicts, news on inside information about domestic and multinational firms. Soon, investors and households base their investment and business decisions on those news. The questions I ask myself today is: “How credible are those news?” “How reliable are those professionals” and finally “ How would the real mechanisms of the economy react if we were to eliminate individual expectations and forecasts?”
Today April 27th 2011, the world has been waiting impatiently, waiting for THE man to speak! ...Waiting for THE man to give signals about the US economy. I can’t deny that I was waiting too. I was impatient to see how a man’s word can affect the economy of the world. I was waiting to witness the changes that Ben Bernanke’s conference will generate. In the morning, many stock exchange markets have registered positive change in their indexes. Paris registered for the fifth consecutive times a 0.55% increase because of the positive signals received from the American and Asian markets. However, Paris was also expecting some change after the FED Chairman Mr. Bernanke’s conference, and the release of the unemployment rate in France.
Since promises are made to be kept. The FED Chairman speaks for the first time at a conference, making his words as clear as never before. My Finance professor Moini remembers the former FED Chairman speaking with a cigar in his mouth, making his words cloudy and hard to understand and consequently hard to interpret. But today the words came out clear. The economic recovery is at moderate pace, the GDP will most likely be announced to be fewer than 2%, and the dollar will keep fluctuating. Those announcements didn’t take time to shake the US Dollar’s value, which dropped after the conference. As a result, people’s expectations follow to take a negative aspect.
On the other hand, the stock market will most likely follow the trend to be affected negatively.
When I made the last statement, I realized that as harmful as I see expectations. I often find myself forming interpretations, upon which I will most likely make decision. I believe today that the economy’s state is no longer under the traditional rule of demand and supply, another factor has come to affect it strongly: Expectations!
Expectations are also tightly linked with speculations! The next question is: Which are the most harmful, expectations or speculations?