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Image: Tina Tiller
Image: Tina Tiller

BusinessAugust 6, 2024

There’s chaos on global markets. What’s driving it? And should you panic too?

Image: Tina Tiller
Image: Tina Tiller

An epic fall on Japan’s stock market set off a worldwide sell-off. Duncan Greive explains what it all means.

Is this 1987 all over again?” asked the Wall Street Journal, the paper of record for global markets, after a day of decimation on global share markets. For those not born in the go-go 80s, 1987 is a year that brings chills to the hearts of investors of a certain age, largely due to the events of Black Monday, when the Dow Jones Industrial Average, a group of major US corporations, slid 22.6% in a single day.

The 87 crash was precipitated by a slump in Asian markets, which open ahead of those in much of the rest of the world due to time zone differences. That’s what made yesterday send shivers through investors, after Japan’s Nikkei stock index fell over 12%, its worst one-day swoon since 1987. 

This prompted a sell-off around the world, with European stocks down 2%, the US’s crucial S&P500 down 3% and the tech-heavy Nasdaq index down almost 3.5% – the largest declines in two years. It was not confined solely to stocks, with crypto assets like Bitcoin dropping 15% and Ether 22%. Closer to home, Australia’s ASX lost 3.7% on Monday, wiping AU$100bn from investors, while the local NZX has opened down 1% this morning in early trading. 

Photo: Getty Images

What’s prompting the panic?

Global markets have surged all year, driven higher by hopes AI would provide a much-needed productivity boost. This has been led by chipmaker Nvidia, closely followed by the likes of Alphabet (owner of Google), Microsoft (a key investor into OpenAI) and Meta (which has posted powerhouse earnings, partly thanks to incorporating AI into its ad products).

The buoyancy is also down to a belief that the US central bank had succeeded in the fabled “soft landing”, managing to bring down post-pandemic inflation without causing a recession. But lately there has been a lingering sense of excessive confidence, masking a number of major risks. Very weak US jobs data on Friday seemed to confirm fears that a recession was still a live possibility.

Another thread was elegantly expressed by the Economist, which recently ran a cover featuring an image of a bull (the symbol for charging markets) wearing a blindfold, asking how long markets could ignore politics. That’s because the US election brings danger no matter who wins. Republican presidential candidate Donald Trump is threatening an inflation-spiking 10% tariff on Chinese imports. His running mate JD Vance is deeply suspicious of big tech – the very stocks that have driven the bull market higher. 

The swiftly elevated Democrat Kamala Harris is more of an unknown quantity, but has refused to indicate her feelings towards firebrand Lina Khan of the FTC (Federal Trade Commission), who (like Vance) has big tech squarely in her sights on antitrust (anti-competitive conduct by companies) grounds. Just today, a major ruling called Google a monopolist in search, meaning a long-mooted breakup or blockbuster fine could be rounding into view. There are major cases in train against Apple, Meta and Amazon too.

There are also murmurs that AI might not be the technological marvel it’s cracked up to be, with Goldman Sachs issuing a warning last month. As The Spinoff’s Shanti Mathias reported last week, it requires astronomical levels of power, and phenomenal investments in chips and data centres. As of now, all that is largely being funded by investment rather than businesses or consumers (shades of the “millennial lifestyle subsidy” that underpinned the likes of Uber for many years), making some in tech wonder if it is a sequel to recent crypto and metaverse hype cycles. 

There are growing fears that AI will never be able to shake off its errors, and that its costs and demands for power and data will stand in the way of it being the profit machine the big tech valuations imply. That’s partly what underpinned steep declines in the share prices of Alphabet, Microsoft and Nvidia, while Apple was also impacted by a disclosure that famed investor Warren Buffet had halved his company Berkshire Hathaway’s huge stake in the company.

How bad is it really?

There’s a clue in some of those numbers above. While the Japanese drop is freaky, most of the rest are far less steep. They largely represent a return to highs seen earlier this year. The Nasdaq, S&P500 and ASX200 falls simply took the markets back to levels last seen in early May. The NZX, meanwhile, has only dropped back to its level of July 16. This partly reflects a stodgier, less dynamic market – but also blunts the impact on local investors.

It doesn’t mean we’re out of the woods by any means. What made 87 shocking was the fact it happened in a single day (though New Zealand slid further and for longer, largely because our market was built on some very funky companies). As the late, great Brian Gaynor noted on the 30th anniversary of the 87 crash, by 2017 the NZX50 had yet to recover the all-time high reached prior to the crash.

It’s true that there are a number of crucial market indicators, including the Cboe volatility index (or VIX), commonly known as the “fear index”, which has spiked to very high levels, including an intraday high not seen since the dread markets of the early pandemic in 2020. Yet even those are not perfectly correlated with recessions – as the Wall Street Journal noted, “87% of the time, investors who bought the S&P 500 on days when the VIX closed at 30 or higher ended up making money a year later.”

Image: Tina Tiller

What’s an innocent KiwiSaver to do?

The general and always-on advice for everyday investors and those anxiously watching their KiwiSaver accounts is to turn a blind eye to all this. “Stocks are crashing – that’s a great reason to sit tight”, wrote the Wall Street Journal’s money columnist, while the New York Times’ equivalent echoed that in saying “when the stock market drops, stay calm and do nothing”

This is partly because trying to time markets is something even the most highly paid financiers struggle to accomplish with any consistency. But it’s also because the contributors to this sell-off are considered far less consequential than some prior market routs. At the start of the GFC, you had major investment banks failing due to an excess of risky home loans, the tech bubble was inflated by essentially valueless stocks reaching huge market caps, while the failure of hedge fund Long-Term Capital Management was due to system-wide risk.

Many are attributing these falls to something far more banal: profit-taking. Because markets have surged this year, there are many asset managers who had followed the market up, making gains on paper of 20% or more in just a matter of months. The bad jobs report (which showed US unemployment data had unexpectedly risen in July) and worrying results from key tech stocks made some decide to just convert the upswing into cash for the time being.

Another reason for cautious confidence is that many central bank interest rates – including our own – are at or near their highest level in a decade or more. It means that if the economy sputters and unemployment jumps, the likes of Adrian Orr only have more incentive to lower interest rates. This will release more money into the economy, through homeowners paying less interest, and allow businesses to borrow at cheaper rates.

None of which guarantees that this won’t go further. But it does make a bunch of plunging line charts slightly easier to stomach.

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A background has "neoliberalism" written on it with elements form Pātea Māori Club's Poi E album cover overlayed.
Design: Liam Rātana

OPINIONĀteaAugust 5, 2024

Forty years after Rogernomics: Imagining an economy grounded in Māori values

A background has "neoliberalism" written on it with elements form Pātea Māori Club's Poi E album cover overlayed.
Design: Liam Rātana

Forty years on from the neoliberal economic reforms known as ‘Rogernomics’ were implemented in Aotearoa, advisor on Te Tiriti o Waitangi, environmental policy and engagement Jo Waitoa argues that it’s time to reform the economy again.

Aotearoa in 1984. Pātea Māori Club hit the music charts with Poi E, the first waiata Māori ever to do so. Written by Ngoi Pēwhairangi and music by Dalvanius Prime, the song spent 22 weeks in the music charts, with four of those weeks at number one.

This month we mark another significant date in 1984 – the fortieth anniversary of the snap election that brought in the fourth Labour Government. This period became synonymous with privatisation, deregulation and free market capitalism. The economy went from one of the most regulated in the OECD to one of the least.

In the United States and United Kingdom, the economic ideology was nicknamed Reaganism and Thatcherism, respectively. In Aotearoa, the beginning of our neoliberal era was Rogernomics.

Forty years later, trickle-down theory merely filled the cups of the wealthy few. Māori inequality started when the Crown undermined political and legal systems, and dispossessed land through theft and policy in the 19th and 20th centuries (5% or 1.4 million ha of Māori land remains today). This was compounded when waves of urban migration after World War II locked many Māori into low paid, and (so called) low skilled jobs. Most of those were jobs in government run industries so privatisation hit disproportionately hard. By 1992, Māori unemployment had reached 25% compared to the overall rate of 10%.

Widespread job losses led many to intergenerational dependence on state welfare which has further exacerbated inequality for whānau in health, education, and economic outcomes to name a few. This was coupled with the introduction of a Goods and Services Tax (GST) which also particularly impacted those on low incomes.

The economic system is not broken, it was designed this way. But that means it can be redesigned.

Economic growth at all costs will cost all our mokopuna their future, but it doesn’t have to be that way. It is not a foregone conclusion that the economic system is extractive and inequitable.

A common refrain across civil society is “what is good for Māori is good for everyone”. Kaupapa Māori frameworks have benefited communities across Aotearoa. For example, Te Whare Tapa Whā (a holistic health model) informs now informs mainstream approaches to health and wellbeing and the reciprocal “Ako: learner as teacher” model is a key principle in the study of teaching in this country.

The economy is no different.

Iwi capacity and access to resources is varied across Aotearoa (Photo: Manuel Ceneta/AFP via Getty Images)

An economy or economies based on manaakitanga, whanaungatanga, kaitiakitanga could set everyone up to live well, within connected communities and planetary boundaries. What if rāhui were respected and our ecosystems were regenerated, or our sense of obligation to each other meant that no one went hungry?

The devolved approach of the fourth Labour government was welcomed by some iwi leaders at the time and seen as an improvement from previous paternalistic attitudes. Positive Māori development was a focus at the 1984 Hui Taumata, Māori Economic Summit and was followed by a period more focused on self-sufficiency, with the devolution of several state functions (mainly health and social services) to iwi authorities.  It was questioned, however, whether this approach just allowed the Crown to abdicate its responsibilities to honour Te Tiriti o Waitangi.

Today, iwi capacity and access to resources is varied. Some are well funded organisations which deliver a wide range of services while others have to run mostly on aroha. Crown settlement processes which force groups to arrange themselves in unhelpful ways to seek redress may have created more issues than they solved. Now its often iwi facing calls for devolution. Hapū who are the kaitiaki and authority on the ground, now seek opportunities to make their own decisions with their own resources.  

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Meanwhile leaders might be criticised as “elites” who have bought into western economic imperatives in the pursuit of increasing returns. It is more nuanced than this though. Treaty settlement redress stands at about 2% of what was taken. Leaders have a responsibility to their tīpuna and their mokopuna but they are also faced with how to deliver for their people today, many of whom are doing it really tough. The vast economic inequality among Māori also illustrates the failure of the neoliberal project. 

People will argue it’s too big or too difficult to do anything different, but we already are. Wakatu Incorporated have a 500-year intergenerational plan. Communities across Aotearoa (and the world) have returned to localism. Food sovereignty initiatives have drawn attention to the need for resilient systems but are also an opportunity for people to learn skills and connect with where their food comes from. Para Kore for example supports organisations to grow their own food, divert waste from landfill and be a better ancestor.

There is of course much more required. There are many interests vested in the status quo. As Matthew Scobie and Anna Sturman noted in The Economic Possibilities of Decolonisation (2024), we need an economic transformation, similar to the constitutional transformation Aotearoa needs to create the future envisioned by those who signed Te Tiriti o Waitangi. As usual, Matua Moana Jackson said it best: “Being courageous is just the deep breath you take before you start something difficult.”

We can reimagine the economy. We just need imagination and courage.

But wait there's more!