Why David Cameron Is Wrong About A Second Global Crash

You have to be worried about our nation’s future when even the Prime Minister is warning that the end is nigh.

I thought politicians were supposed to deliver inspirational leadership, not scare the bejeezuz out of us.

David Cameron has chosen the latter, warning that “red warning lights are once again flashing on the dashboard of the global economy”, as they were before the global recession six years ago.

Conflict in the Middle East, Russian actions in the Ukraine, slowing emerging markets, Ebola and stalled trade talks have led to a “dangerous backdrop of instability”, he cries.

He might as well have wandered around Parliament Square wearing a sandwich board saying “Repent Ye Now!”

It’s Not All Bad

So is the second global economic crash upon us? There are certainly plenty of challenges, and Cameron is right to say we can’t insulate ourselves from global worries.

Where he is wrong, from an investment point of view, is that he is standing too close to that interminable wall of worry that stock markets always climb, and needs to back off to get a bit of perspective.

Because there is plenty of promising news out there as well.

The US is motoring again. In October, it created more than 200,000 net new jobs for the ninth consecutive month. The Federal Reserve has finally wound down QE3 with surprisingly little collateral damage so far.

The falling oil price is also a plus (unless you’re Russia, Iran or Venezuela). A barrel of Brent crude trades at around $77, down one-third since July’s price of $116, putting money into consumers’ and businesses’ pockets.

We’ll Beat Ebola

I’m sorry, but I can’t get too worked up about Ebola right now. I suspect that is another global health scare that will never fly, like bird flu.

The Middle East is certainly miserable, but the Islamic State doesn’t pose an existential threat to the West, and the oil is still flowing, including from strife-torn Libya and Iraq.

More Good News

The gold price would be soaring if investors were panicking at the prospect of a second global crash. Instead, it is down nearly 5% in the last month, to $1,191 an ounce.

The FTSE 100 has stabilised following its recent wobble. Emerging market valuations have fallen to below 1.5x book value, which many see as attempting entry point. 

The first interest rate hike is receding into the distance.

Since 2009, doomsayers have been predicting another global meltdown. Anyone who listened would have missed out on a five-year bull run.

History shows that economic crashes are impossible to predict. Cameron shouldn’t even have tried.

Even if markets do crash, wise investors will see this as a great opportunity to go shopping for their favourite stocks.

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