Editor BILL JAMIESON has a message of hope to our English readers today: the sky has not fallen in. Life Goes On!
Since host nation England was knocked out of the Rugby World Cup, economic pundits have warned of consumer spending misery and a stock market slump.
The Mirror reported England’s exit “is a disaster for business” predicting a £3.5 billion loss to the country’s economy.
The Guardian and CityAM carried forecasts that the London stock market would slump on Monday, with £3 billion wiped off share values when trading resumed.
The Daily Telegraph carried a lip-trembling article warning that ITV alone could lose up to a £1 million per match in advertising revenues if England was not involved. Pub and retail sales would also suffer because less-avid or neutral rugby fans were more likely to lose interest.
Not to be outdone, the Daily Mail headline yesterday warned of a “Doomsday Scenario”: ITV revenues would suffer and “by the same token, the country’s pub and club trade has feared an England exit, knowing that takings would be hit.
Be scared, be very scared. But the reality?
Yesterday the FTSE 100 leapt by more than 160 points or 2.6 per cent, adding billions to share values!
And those hard hit pubs and leisure companies? Shares in drinks giant Daigeo were up 1.7 per cent, Enterprise Inns by four per cent, Greene King up by 0.7 per cent, Restaurant Group up 1.25 per cent, Betfair plus 0.8 per cent and Whitbread up 1.4 per cent. Tesco, popular in the “carry-oot” trade, was up 3.4 per cent.
And ITV, in the front-line of this financial Armageddon? The shares rose 1.74 per cent.
According to Alex Edmans, professor of finance at the London Business School (for the moment), his research showed that if a national team is eliminated from an international tournament it makes investors fed up and pessimistic the next day.
“Rationally, if there’s a loss then the stock market would decline because, for example, spending would be less because people would not be going to pubs as much.
“What I found in the paper is more than that rational effect is an irrational effect. The decline that I find is too large to be explained by rational factors. So there’s some irrational factors going on in terms of the mood”.
You can say that again. As Maynard Keynes once quipped, “The market can stay irrational longer than you can stay solvent.”
Yesterday the market bounced – it may well have been a Dead Cat Bounce – on talk of asset disposals by the stricken Glencore mining giant and a rally across the heavily-sold natural resource sector. England’s rugby misfortunes were certainly not uppermost in investor minds.
The widely- quoted Edmans had tested the impact of international football results on stock returns in 39 countries and found that markets typically fall about 0.5% the day after a national team is knocked out of a big competition. The effect was less for rugby but still statistically significant.
He argued that a sporting defeat “makes investors more negative about life in general. If England were to lose, they wouldn’t just be negative about the England rugby team but also about economic outcomes in general.”
Applying Edmans’ logic to Scotland and its long history of sporting setbacks, it’s astonishing we’ve even managed to recover from the 1929 crash. If Edmans was right, there would now be barely a business left north of the Border. It just wouldn’t be worth getting out of our beds.
One other miserable speculation to add to the mix: England’s defeat may pitch the UK into deflation as sales of sports goods plummet and England rugby shirts suddenly become available at half price or less!
However, the effect could be to further delay that much predicted rise in interest rates. Minutes of the next Monetary Policy Committee meeting will now be closely scanned to see whether the Bank has chosen to look through this “temporary downward impact on inflation”.
But the bigger take-away from all this? The effect of sporting setbacks on the national psyche tends to be temporary and the psychological blow fleeting, where it registers at all on our investment and spending habits.
Cheer up, England fans. You may be spending less in the pubs and bars – for a day or so. But the downturn seldom lasts long. There is an inexhaustible font of good reasons for a visit to the pub or a good night out.
And even before the World Cup is over, the money temporarily saved will be more than blown in clothes, car accessories, home improvements, household gadgets … and trips to IKEA – arguably more depressing than a rugby defeat. The antidote? It’s easy to find on any day – a trip to the pub!