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Climate change

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

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  1. Climate change Ian Ling Five stages of grief

  2. Loads of grief • Equity markets have fallen sharply

  3. World Equity Markets (USD) 30 April 2008 to 30 April2009

  4. 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

  5. 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??

  6. 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

  7. 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

  8. 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.

  9. 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

  10. 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

  11. Five stages of grief Elisabeth Kübler-Ross 1. DENIAL 2. ANGER 3. BARGAINING 4. DEPRESSION 5. ACCEPTANCE

  12. 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?"

  13. 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

  14. 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?

  15. 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.

  16. 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

  17. 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”

  18. Ian Ling Fear and Greed Model – (patent pending!!) GREED Caution Certainty Concern Belief Capitulation Disbelief FEAR FEAR

  19. 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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