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Climate change. Ian Ling. Five stages of grief. Loads of grief. Equity markets have fallen sharply. World Equity Markets (USD). 30 April 2008 to 30 April 2009. Liquidity crunch. MSCI World. 1600. 1200. 800. 400. 0. Mar-94. Mar-82. Mar-85. Mar-88. Mar-91. Mar-97. Mar-00.

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Climate change

Ian Ling

Five stages of grief


Loads of grief

  • Equity markets have fallen sharply


World Equity Markets (USD)

30 April 2008 to 30 April2009


Liquidity

crunch

MSCI World

1600

1200

800

400

0

Mar-94

Mar-82

Mar-85

Mar-88

Mar-91

Mar-97

Mar-00

Mar-09

Mar-70

Mar-06

Mar-73

Mar-76

Mar-79

Mar-03


Loads of grief

  • Equity markets have fallen sharply

  • Property market collapse

  • Commodity prices collapse

  • Corporate bonds tank

  • Interest rates fall to zero

  • …….worries over another depression

  • … are we following Japan??


Nikkei Index

Since 1970

40000

30000

20000

10000

0

Jan-70

Jan-86

Jan-06

Jan-74

Jan-78

Jan-82

Jan-90

Jan-94

Jan-98

Jan-02


What can we expect?

Look at the thoughts of two analysts who have assessed the

link between grief and market behaviour

  • Edwin Coppock– 1960’s

  • Technique to determine long term investment opportunities

  • Investors need time to mourn the death of a bull market

  • 10-14 months according to Church Bishops


Australia's

All Ordinaries Index

Buy signal

1999

2006

2000

2002

2003

2004

2005

2001

The Coppock Indicator

The indicator is trend-following, and based on monthly averages, so by its

nature it doesn't pick a market bottom, but rather shows when a rally has

become established.


The Coppock Indicator

  • Very close to a buy signal for the S&P

  • Interestingly almost exactly 9 months after Lehmans collapse and Fannie Mae and Freddie Mac rescue


What can we expect?

  • Elisabeth Kübler-Ross

  • Developed a behavioural pattern of people suffering from terminal illness, and later to any form of catastrophic personal loss (job, income, freedom)… loss of capital!!

  • Identified five stages of grief


Five stages of grief Elisabeth Kübler-Ross

1. DENIAL

2. ANGER

3. BARGAINING

4. DEPRESSION

5. ACCEPTANCE


Kübler-Ross Model – 5 stages of grief

  • Denial -"This can't be happening, not to me."

  • Anger- “It's not fair!"; "Who is to blame?"


Fury at $2.5bn Lehman bonus

- The Times 21 Sep 08

Former RBS chief's house attacked amid pay outrage

The Financial Times 26 Mar 09

Eleven AIG executives quit despite bonuses up to $4.6 million

The Times – 17 Mar 2009

Protestors smash into RBS branch

The Financial Times 02 Apr 09

The people v The banker: The payouts party is over

The independent 15 Feb 09

Merrill Lynch’s CEO spent over $1 million to redecorate his office—even as the firm faced a financial crisis.

Goodwin defiant over pension as investors heckle RBS Board

The independent 04 Apr 09

AIG chief urges staff to return bonuses


Kübler-Ross Model – 5 stages of grief

  • Denial - "I feel fine."; "This can't be happening, not to me."

  • Anger- Why me? It's not fair!"; "How can this happen to me?"; "Who is to blame?"

  • Bargaining - “how can we sort this out?” – G20? G2?


Sorting it out – director/shareholder relationship

  • Pre 2009 – companies not run for the benefit of shareholders

  • run for benefit of directors

  • Options…Exactly that…not a long-term commitment

  • Borrowing to buy back shares.

    • Increased share price – make options more valuable

    • Increased gearing

  • Excessive pay – Oligarchic. Justify paying in comparison to peers.

  • Shareholders passive – stock going up so no concern.


Sorting it out – director/shareholder relationship

  • Post 2009 - Change of sentiment

  • Companies will be run for the shareholders again (e.g. Japan)

  • In some cases CEOs have to buy a number of shares determined in relation to their overall remuneration.

  • Proposal for average wage to appear in report and accounts and the difference between the highest and lowest salaries and male and female wage differential.

  • Shareholders becoming more activist


Kübler-Ross Model – 5 stages of grief

  • Denial - "I feel fine."; "This can't be happening, not to me."

  • Anger- Why me? It's not fair!"; "How can this happen to me?"; "Who is to blame?"

  • Bargaining - “how can we sort this out?” – G20? G2?

  • Depression – “why bother with anything?"; What's the point in saving?“

  • Acceptance - "It's going to be okay."; "I’ve taken the pain and can start again”


Ian Ling Fear and Greed Model – (patent pending!!)

GREED

Caution

Certainty

Concern

Belief

Capitulation

Disbelief

FEAR

FEAR


Trading

range

MSCI World

GREED

GREED

1600

1200

800

FEAR

FEAR

400

0

Mar-94

Mar-82

Mar-85

Mar-88

Mar-91

Mar-97

Mar-00

Mar-09

Mar-70

Mar-06

Mar-73

Mar-76

Mar-79

Mar-03


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