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I was interested in the comments made last week by a senior bureaucrat about the prospect of a second recession wave in the GFC – global finance crisis.
I have held this same view now for many months that a second hit is a real prospect. Yet equity markets bounce ahead with gay abandon. For some, this will end in tears.
Please take a look at the chart which has been my guiding light for several weeks and maybe even months:
click to enlarge
Our government also warns us that it is not all over. Unemployment is to increase, inflation is to rise. These in themselves may not bring about another tsunami. What may cause the next leg down is not of real deep intrinsic interest to me although I do contemplate various scenarios but I do not have the courage to write about them for fear of being run out of town. Although that has not stopped me in the past.
But I don’t want to be a party pooper and I am happy for those who are happy buying the markets at the moment as they obviously are happy to do so. I cannot be a missionary for all causes in this complex world.
Will it be a tsunami? Well I don’t know. And I am not sure anyone knows with any confidence. You see economics is not a precise science. Many economists may agree in broad terms about a range of possible scenarios but few will get timing right.
I already feel as if I have been on the sidelines for an eternity although that does not concern me as the big money is made by getting the big picture right - plus I just don’t like risk when it can be measured and managed. But there again there has been nothing about this market in recent months that has really excited me so I am really happy on the sidelines. I know I can be fully invested when the time is right.
So tsunami or not, second coming or not I will just wait till it is time for me.
Enjoy the ride
Tom Scollon
Chief Analyst
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