When Gunung Agung came back to life last September, after remaining dormant since the early 60’s, many lives were turned upside down. Hardest hit were the local residents who were forced to flee the exclusion zone around the mountain, many of whom are still unable to return to their homes and livelihoods until the authorities deem it safe to do so.
The impact was felt severely by the tourist industry also and again by the thousands of local people dependent upon it. Gradually however business is returning to normal but with the knowledge that Agung can turn angry again at any moment. Those who survived the last eruption when people were less prepared are more than aware of the dangers.
Expatriate residents of Bali have been affected in many ways; some by the fall in the number of visitors to their hotels, restaurants or tourist facilities, to others who now find it harder to sell their properties. Many quickly adapted to the challenge by offering free hotel stays in the event of flight disruptions or arranged temporary closures and layoffs in restaurants to preserve capital. Some have even capitalised on the eruption to turn it into a tourist attraction – at a safe distance of course, although until the rainy season ends and the clouds clear there’s not a lot to see!
For those affected by events long term financial planning should not be compromised if a prudent cash reserve for emergencies is in place.
What other bad news is out there?
In short plenty! The latest bombshell to come out of the US is President Trump’s latest measure to add steep tariffs on imports of steel and aluminium. That is unlikely to directly affect expatriates in Bali but his measures to reduce imports overall from Indonesia and other countries may well affect a number of local exporters of garments and other manufactured goods to the US.
Trump’s belief that the rest of the world is cheating the US has wider implications as his lack of understanding of international trade can undermine the advances in global standards of living achieved over decades. Implications for businesses and investors alike are very negative as no-one really wins a trade war or any other kind of war.
Solutions for business people affected are to diversify target markets and not to depend almost entirely on any one particular market. This has always been the advice I have given. If you are invested directly or indirectly (eg through pension schemes) in the stock markets you should not be overly concerned as any dip is likely to be temporary. Markets and countries have a way of resolving issues and in any event Mr. Trump could well reverse his position as he frequently has done.
Bad news did not affect the markets in 2017
Given the numerous crises in 2017 including the North Korean threat, increased tensions in the Middle East, the migrant problem in Europe, the rise in several countries of popularism, Brexit and natural disasters one would have been forgiven for predicting a huge market crash. But it didn’t happen. The markets took events in their stride and continued to bask in the sunshine of corporate profits and where the US was concerned an expectation of more of the same as Mr. Trump announced big tax cuts (for the better-off). Economists do however expect that someone is going to have to pick up the tab sooner or later so to be realistic we should not expect the kind of returns we saw last year to be repeated.
Really bad news could well be fake news!
If you are a determined pessimist and want to be really depressed you need look no further than the Internet for inspiration. Probably like you I have been watching live feeds of Agung on Youtube. Now Youtube has a way (like all social media) of retaining viewers’ attention by tempting them to move on to another video which they believe will interest them. Hence their videos of other and more dramatic volcanoes around the world.
Several focus on one of the potentially most damaging volcanoes, Yellowstone National Park in the US. Not satisfied in presenting just facts about the ‘super-volcano’ for example that it tends to erupt only every few hundred thousand years the headline is likely to read ‘A super-volcano waking up in the USA’ and even ‘End of the World’.
As if that is not enough, one link then invited Youtube addicts to listen to the sounds that scientists in Russia heard when they dug a hole in the earth to 14 kilometres and then lowered a microphone. The sound it picked up was that of thousands of tormented souls, leading to the conclusion that they had discovered Hell. There are multiple Youtube contributions reflecting the same story. Fortunately there is one that debunks the tale and reveals that the ‘sounds from Hell’ deep in the earth were actually an adaption of part of the sound track from a 1970’s horror movie ‘Baron Blood’.
I mention the above because there are clearly people who believe this nonsense as you can see from some of the viewer comments. No doubt they are impressed by the seriousness of the presentations and the apparent credibility of the presenter. Of course the people who post these videos stand to gain financially when they attract large numbers of hits, hence the tendency to use attention-grabbing and sensational headlines.
And how about this for ‘fake news’?
Do you recall a headline being blasted from respected TV stations and the press early last month: ‘Biggest daily fall ever in Dow Index’. It was not exactly ‘fake’ because the Dow actually did fall by its largest number ever in one day. But that was because it now stands at a much higher number than in years gone by. In percentage terms it was only around 3.5%. Compare that with the 40%+ fall in the US markets during the Global Financial Crisis and you can see how insignificant the fall actually was.
Yet the headline itself caused many to panic and ask if they should cash out and ‘run for the hills’. Such is the power and influence of the media.
So how should we react to ‘bad news’?
As it happened the markets recovered half their losses in a few days and although volatility abounds due to political mis-steps and the prospect of a rise in interest rates nothing should cause people to change course in their long-term planning.
There will always be ‘bad news’ in the course of any long journey. The best way to handle it is by anticipation before an event. This means for those involved in business diversify your product and your target market. (Even Kentucky Fried Chicken ran out of chicken recently in the UK; fortunately they were able to offer fish until supplies were restored.)
Where financial planning is concerned insurance is the first step; ensure you are fully covered for life’s nasty surprises. Keep ample cash reserves so you can weather an emergency or disruption. Keep saving for your long term needs and retirement.
And finally, don’t let news headlines intimidate you and throw you off course!
Colin Bloodworth, Chartered Member of the Chartered Institute for Securities and Investment (UK), has spent over 20 years in Indonesia. He is based in Jakarta but visits Bali regularly. If you have any questions on this article or related topics you can contact him at colin.bloodworth@ppi-advisory.com or +62 21 2598 5087.
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Copyright © 2018 Colin Bloodworth