What did we learn from this month’s stock market crash? Nothing

So, what was all that about?

A fortnight ago, fear that global finance was on the eve of destruction caused a wave of panic as traders from New York to Tokyo battled one another in a race to exit financial markets.

Three potentially lethal storms of doubt collided, convincing many that a new global financial crisis was upon us.

In short order, they were that the world was on the cusp of recession, stocks were horribly overvalued and, once again, an obscure trading strategy had suddenly come unstuck, threatening to unravel the cord binding currency, money and stock markets.

But it ended as quickly as it started and, in the nanosecond attention span of finance, now is but a distant memory.

Stocks have risen for nine of the past 10 sessions, roaring back to almost the levels that were causing such heartache, and the “Japanese carry trade” has reasserted itself as the transaction du jour for financial high-flyers.

The sudden violent shift a fortnight ago, however, has highlighted an undercurrent of concern resonating across global markets about a range of uncertainties.

Geopolitics have rarely been more unsettled. The first major European conflict in more than half a century continues to play out in Ukraine just as Middle East tensions are moving towards a crisis point.

In the US, the political divisions — many of them based on wealth disparity — that have split the nation for the past decade will culminate in an election that hopefully won’t get ugly later this year.

And then there’s the economy. Investors have suddenly remembered the flip side to interest rate cuts. It’s an attempt to stave off recession.

Stocks flashing red

When the mini-crash occurred, all eyes were on America’s tech giants, the handful of companies that have bet big on Artificial Intelligence.

Chip maker Nvidia, a company few had heard of 18 months ago, has seen its shares soar more than 1,000 per cent in two years, catapulting it into rarefied company.

After almost two years of spectacular gains, the Magnificent 7 tech grouping, encountered a sickening slide in market value as punters were forced to confront reality.

Amazon, Apple, Facebook parent Meta, Google parent Alphabet, Microsoft, Nvidia and Tesla collectively shed more than $US1 trillion during that testing few days, slicing billions from the net worth of their founders.

In the past fortnight, however, they’ve miraculously recovered almost all their losses.

But overvalued stocks aren’t confined to the US or the technology sector for that matter.

Here at home, we don’t accommodate much in the way of technology. Despite our best efforts to diversify, our economy remains committed to houses and holes; digging up minerals and energy and building and financing new dwellings.

It just so happens that our biggest bank and mortgage provider, the Commonwealth, has joined the ranks of Silicon Valley’s finest, unshackling itself from valuation reality in the past few years.

Depending on how you measure it, CBA has become the globe’s most expensive bank, sparking ever more inventive calculations from investment bankers to justify its lofty market worth.

When the storm hit, CBA slumped more than 10 per cent. But since then, not only has it recovered all its losses, it’s surpassed its previous record. And that’s despite delivering a 6 per cent decline in profit just last week.

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Don’t mention China

RBA governor Michele Bullock couldn’t have been more blunt.

China’s four year property market meltdown, which appears to still have some way to run, was becoming a major concern, she said last Friday.

At a House of Representatives Standing Committee on Economics she said: “Developments in China can have quite a big impact on the way our trade develops, and therefore our growth.”

Iron ore prices have been on the slide for months, falling around 40 per cent, which has been reflected in the share prices of mining giants BHP, Rio Tinto and Fortescue Metals.

The declines suddenly have begun to accelerate, dropping sharply last week to around $US92 a tonne after a warning from the country’s biggest steel producer Baowu that the industry was facing a “harsh winter”, worse than that of the 2008 Global Financial Crisis and the 2016 contraction.

The RBA governor was at pains to spell out the impact on our national finances.

“China is really important for us because of our trade relationship,” she said.

“It’s our biggest trading partner and it’s very important, in particular for the prices of the commodities we export, in particular iron ore.”

That’s deflationary and potentially contractionary.

With Chinese residential construction continuing to shrink, demand for steel has slumped. That’s jeopardised the economics of many of its smaller steel producers which have attempted to offset the decline by flooding global markets with excess product.

That, in turn, has placed pressure on steel manufacturers globally as prices tumble.

Goldilocks finds New Zealand just a little too cold

Stock markets may be running hot again but there’s an air of scepticism around money traders.

Where stock investors believe in the Goldilocks scenario – that central banks can bring inflation under control without tipping the global economy into recession – money markets still haven’t signed up.

While they’re convinced the US Federal Reserve will cut rates by 0.25 percentage points next month, they don’t quite believe the RBA’s insistence that rates will remain steady until next year.

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China aside, you only have to look across the Tasman to see why. Back in May, the RBNZ’s Adrian Orr was adamant. The board, he said, had just discussed raising rates again, despite sitting at 5.5 per cent.

But last month, the tone was notably softer. They economy was slowing rather rapidly, he said. Last week, the Kiwis suddenly cut rates and indicated New Zealand would be in recession in “the second half of this year”.

That would be now.

What a turnaround. Or rather, what a continuation. If it comes to pass, it would be New Zealand’s third recession in just two years.

Which brings us back to stocks.

Globally, stock markets are again sitting just below record highs. They are priced for a magical elimination of inflation, continued strong economic growth, and an outbreak of global diplomacy and world peace.

Not much margin for error.

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