The global economy and stock market sky is falling.
The sky is falling in and everyone’s going about their business as if nothing is happening. That everything will end up alright in the long run, so why worry?
Well, there is an alternative scenario here.
That is, that the slow-down in manufacturing, supply chain disruption, and the accompanying crisis levels of consumer confidence – akin to the GFC in the USA, will be combined with the US Fed rate hikes and mortgage stress to generate a prolonged multi-year slow-down. With accompanying heavy stock market conditions.
Everyone is acting as if negative news and downside are only temporary affairs. No one is factoring in the true end to a global frenzy of Tulip bulb style mania. Investing purely for investing sake. Driven simply by the knowledge that prices have been rising and so they will continue to do so, Now comes the correction.
It may be no small affair. Nor short in duration.
Find a fellow investor who is factoring in a 3-6 year global slow-down with equity markets declining 30% to 50% from their peak? There are none and therefore that is what would hurt markets the most. What would hurt markets the most is often what ends up happening.
We saw further significant deterioration in economic activity in the US yesterday, and the Federal Reserve must raise rates to chase inflation belatedly.
Inflation is usually a disease that accompanies strong growth. This time, we are seeing widespread global slowing as inflation reaches extreme levels due to supply. Not demand issues.
It feels to me like most investors and funds management firms are badly exposed to the potential ravages of such a situation.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities