The bears are out of hibernation. It's a great opportunity to put the odds in your favour, wherever the market goes from here.
Summer is a time for relaxation, enjoyment, holidays, long evenings and spending time with the family. It's a chance to take your foot off the pedal and recharge your batteries.
The stock market should also be gearing up for its annual summer slowdown. We've had a more than turbulent and volatile 15 months. From the depths of 3,461 in March last year, the FTSE firstly soared 69% to 5,834 in mid-April this year, before its 17% swoon over the past 6 weeks.
A little rest now would be nice please Mr Market.
But seemingly not.
Real Fears
A weekend headline in The Telegraph said "Financial markets facing nervous week" with Simon Denham of Capital Spreads quoted as saying "Investors are approaching the week ahead with extreme caution as the recent market falls across the globe have seen real fears resurface about the prospects of a descent back into recession."
On a similar theme, the Financial Times said "Economic Outlook: Data void is likely to add to nervous tension."
Nervousness.
Caution.
Fears.
Tension.
What ever happened to the optimists? Where did all the happy juice of April go?
Ah, those were the days, when all we had to contend with was a little problem in Greece, and the biggest fear was inflation. We knew we had this economic problem too, but we could just brush that under the carpet, secure in the knowledge that 0.5% interest rates would solve all problems.
Since those heady days of a whole 6 weeks ago, economically speaking, little has changed. Greece is still a basket-case, the economy keeps spluttering on, interest rates are still at 0.5%, and higher inflation is still in the offing. Last month we even had the Bank of England's first vote for a rate rise since August 2008 as Andrew Sentence voiced concerns about inflationary risks.
Worst Of All…
But perception-wise, everything has changed. Where investors were once seeing recovery, they now see a possible double-dip recession.
Inflationary fears have been replaced by deflationary fears.
Where China was once going to power the global economy, and particularly commodity prices, onwards and upwards, now there are fears over whether the whole country is one giant bubble.
Worst of all, it has dawned on the investing community that the recovery in world's biggest the biggest economy is going to be modest at best. Unemployment in the US remains stubbornly high. New home sales have collapsed to their lowest levels ever recorded.
Add it all up, and what have you got?
Nervousness.
Caution.
Fear.
Tension.
Head For The Hills
What do you do in the face of all this negativity? Sell up and head for the hills, fearing the mother of all stock market crashes?
Maybe it's the right strategy. I mean to say, back in the Great Depression, after its initial 45% crash in 1929, the Dow Jones rose in early 1930, jumping 50%.
But rather than keep recovering, or stay flat at least, 1930 turned out to be a false dawn, as from there the Dow tumbled another 85% to its painful bottom in 1932.
An 85% fall from the FTSE's peak of April 2010 would see it trading at 875. Scary? Sure. Will it happen? No chance. Zero, nada, zilch. But could the FTSE see 3,000 or even 2,500? Anything is possible, but I'd put the odds at around 5%.
The Odds Game
The future is inherently impossible to predict. As such, investing is about putting the odds in your favour. Do you sell everything now because the chances of the market plunging to 3,000 are around 5%?
It's not my version of "putting the odds in your favour".
The bears, fresh out of their caves after a few months of hibernation, will no doubt have the odds of another full scale crash at much more than 5%. You can no doubt read of their dire predictions in the comments area below. Anyone willing to go as far as FTSE 875?
Each to their own. Investing is not a team sport. Quite the opposite in fact, as 'the team' (otherwise known as 'the herd') has a quite appalling record of buying at the top of the market and selling at the bottom.
FTSE 4,800 may not be the bottom. I'd hazard a guess, at sometime in the next 12 months, the FTSE will trade below 4,800. It's not rocket science, of course, because in the short-term, the odds of the market rising or falling are around 50/50.
3 Odds-On Winners
But there I go again. Playing the odds game. Just like I've played the odds game by buying and holding positions in cheap, high yielding blue chips like Vodafone (LSE: VOD), GlaxoSmithKline (LSE: GSK) and Royal Dutch Shell (LSE: RDSB).
And if the market does plunge to 3,500 or less, the odds will be even more in my favour.
In the meantime, enjoy the summer.
More on the economy and the markets:
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> Bruce Jackson has positions in Vodafone, GlaxoSmithKline and Shell.
