Apr.
20
2015

,,A speculator is someone who earns a lot of money. Except if that someone is me.”

Even though DAX and its Western European partners are hitting records every week, not everyone is entirely happy about it. In the interview Joachim Goldberg, author of Behavioural Finance, and former foreign exchange and security stockbroker gave to Alapblog.hu said, according to his experiences, portfolio managers across Europe are praying for a correction, because all these records make them miserable. Their minds are troubled by being afraid of letting further yields slip. However, there is no evidence of stock market bubbles being formed again, like 8 or 15 years ago. There is no enough experience to understand the current situation, because there has never been similar stable-zero interest rate environments, and there has not been so much free money printed. According to the interviewee if millions of people joined to the game and got involved in the stock market, it would bring a change…

 Péter Zentai: While the German stock index, DAX keeps hitting world records, German citizens are still not interested in the capital markets. They rather keep their money in bank deposits than taking a chance on the stock market. Can this negative attitude originate from the conventional revulsion against brokers?
Joachim Goldberg: In Germany and most of continental Europe this is absolutely reasonable, this deeply rooted mistrust against bankers, money changers and brokers is still very much alive. The dislike is strengthened by the surge of information from the internet as well. Millions of semi-scientific financial sites have appeared and spread ill-advised information, while the real, valid knowledge-based papers are losing ground, since their accuracy and expertise are less understandable than the easy to read nonsense.
It has been observed that if a scandal involving finances is exposed, it generates greater reaction than it would if a different field were involved – such as politics. In the latter case, blaming everything on a politician and his or her renouncement are enough to calm people down. After that, everything will be back to normal fairly quickly. Ordinary people and the media – being able to influence their minds – along with politics can easily create a stable and generalised mass attitude, not like bankers or brokers.

People have always hated speculators’ guts…
Among continental Europeans the words ‘speculator’ and ‘speculation’ still have a negative tone. However, millions of observations support that most of the people think this way: „if I earn profit by selling goods for more than I bought them, then I am a fair and good investor. But if someone else does the same, then they are evil speculators”. So „a speculator is someone who can make money cleverly, except if that person is me”.
Anyway, it is alarming how uninterested we Germans are as well in capital market investments. According to a recent study, only ten percent of Germans between the age of 18 and 30 show some sign of interest in this field.
The members of the older generations still feel the trauma they experienced during market crashes in 1990 and then ten years later again.

As long as millions of Germans do not want to become shareholders and become rich through the stock market, there is no market bubble to talk about – at least in the case of DAX. DAX is a reference for Europe…
The main players of the German and the other Western European stock market are undoubtedly the greater and lesser institutional investors. They earn the most from the profit generated by the records.
Still, there is no sign of celebrating these new records. Every asset manager and investor I know is concerned about this. In transferred sense: their hands are shaking. They are under great pressure: they process the eternal truth ,,trees do not grow to the sky”, and that DAX is fundamentally expensive. Based on that, they would rather ‘leave the game’ but they keep wondering what would happen if this rally goes on for years and they will miss enormous yields.
This situation results in every competing institutional investor remains and exchange rates are keep rising.
It is obvious that nobody is happy about DAX valuing 12 thousand. Everyone is hoping for a gradual correction.

Why hasn’t correction happened under the pressure of the negative external news? The Greek situation could result in a tragic ending, Russia is waging war in Ukraine and it could escalate, there are social tensions in Europe…
We have become immune to bad news, we notice them selectively. We only hear what Draghi (president of ECB) said: ,,we are going to protect the euro, whatever it takes”. And the European money printing keeps working; we have never been flooded with so much almost free money. Another thing that lowers our guard is that the ,,disaster forecasts” of the non-central bank president experts haven’t taken place in the last eight years.
Hence, asset managers do not even bother listening to external news that does not directly involve the capital market.

Ordinary people cannot feel it yet – in contrast with what happened seven years ago…
However, according to my experiences, change – probably a rather negative one – will eventually take place once ordinary people get involved.
If people realise that deposit interests, and other safe short-term assets offered by banks not only produce no interest and yield, but generate losses, because interests will actually turn negative; then a dramatic change of attitude will be necessary. This realisation is only about to happen. Its first sign is the ,,appearance of masses” on the real estate market, which is an absolutely new phenomenon here. Meanwhile, if the dynamism of the stock rally is not decreased but keeps growing higher, then smaller investors can flood the stock rather quickly.
This can be seen as a certain stage of the bubble. However, we have not reached that stage yet… DAX may still have some quite months – or even years.