Jan
22
Market tanks, but some give thanks
Filed Under Sunrise on KGMB9
Low unemployment isn’t good news for you if you’re out of work. The story isn’t your story. You don’t even have an excuse to give your family, like you would if things were rough all over.
All financial news is like that. Take puts and calls. Those are financial investments the way Vegas would make them. A put is a contract to put shares of a certain stock into someone else’s hands before a certain date at a certain price. A call is a contract to buy shares that way. In each case, you are betting the other person that the stock will go the opposite way from what he thinks. If you’re an airline and you do fuel hedging, you contract for jet fuel delivery later in the year for a certain price. You’re betting that this price is lower than what jet fuel will actually cost by then. The company that agrees to such a contract is betting that you’re wrong.
If you’re a bankruptcy attorney, the last thing your business needs is prosperity.
Those are the three counterintuitive things about financial news:
- Within any broad trend are specific instances that can be all over the map.
- Many financial transactions are created so that one side will “win” and the other will “lose.”
- Some things are countercyclical, doing well when everything else is doing badly.
Take what happened today. After two days of stocks tanking in Asia (Monday and Tuesday, equivalent to Sunday and Monday in America), European markets began following suit, so the Federal Reserve Board took emergency action, cutting interest rates three-quarters of a percent, the biggest cut since October 1984. Wall Street opened badly, as backed-up sell orders sent the Dow plunging more than 400 points, but two hours later it was down only about 100 points as bargainhunters entered the market.
Bargainhunters benefits from stock market plunges, assuming they’re any good. Some perfectly good stocks were selling at a 10% discount for awhile Tuesday.
Healthy businesses could benefit from the plunging share prices, because it induced the Fed to slash interest rates and now they can borrow money more cheaply.
Hawaii will suffer if an economic slowdown (whether it is or becomes an outright recession or not) slows tourism. We get more visitors from California than anywhere else and California’s economy has the vapors, especially its so-called “Inland Empire.” If Californians feel insufficiently affluent to take a Hawaii vacation, we’re going to get the vapors, too.
But unless that happens, Hawaii could actually benefit from what’s going on.
The dollar is weakening a lot because of the interest rate cuts. This puts Hawaii on sale for the Japanese, as you have read here before. It also makes Europe really expensive for U.S. mainlanders, some of whom might decide they would rather see Hawaii than Italy.
Uncertainty means lower mortgage rates and anything that makes housing more affordable is good for Hawaii.
Stay tuned.
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