These days it doesn’t take much to fire up the doomsters. A rough week for the FTSE 100 (FTSEINDICES: ^FTSE) and all of a sudden, it’s time to swap the party hats for the tin hats? ?at least according to the e-mail that screamed into my inbox just the other day. “Finance expert sounds alarm on 8 ways a new global crisis will hit by 2015” was the subject line. Uh oh. Not just one reason why a new global crisis will thump our wealth? ?but EIGHT! Things must be bad.
These days it doesn’t take much to fire up the doomsters.
A rough week for the FTSE 100 (FTSEINDICES: ^FTSE) and all of a sudden, it’s time to swap the party hats for the tin hats…
…at least according to the e-mail that screamed into my inbox just the other day.
“Finance expert sounds alarm on 8 ways a new global crisis will hit by 2015” was the subject line.
Uh oh. Not just one reason why a new global crisis will thump our wealth…
Things must be bad.
Mark your diary — crisis due between April 2015 and March 2016
Arturo Bris is the latest bear taking the fight to the bulls.
Like you probably, I have never heard of him either, but apparently he is a Professor of Finance at the ‘top-ranked’ IMD business school. So I guess he must know his stuff.
Anyway, Mr Bris predicts:
“Based on statistics, the world could expect a financial crisis as soon as April 2015, ending in March 2016.“
He then goes on to claim the crisis WILL be caused by one of the following reasons. (I’ve extracted the key text for each point.)
1. A stock market bubble
“If markets were to revert to a reasonable level with regards to earnings, there will be a stock market drop of between 30-35%.”
2. Banking in China
“A severe crisis could be driven by growing Chinese shadow banking, a system which consists of loans mainly to government institutions whose performance is not well monitored and not open to competition.”
3. Energy crisis
“[If] the United States, as the world’s largest producer of gas, begins exporting to the rest of the world, Russia might feel threatened, causing a geopolitical storm.”
4. Another real estate bubble
“There is a risk of a property bubble forming in countries like Brazil, China, Canada or Germany.”
5. Ratings and bankruptcy corporate crisis: ‘BBB as the new AA’
“If ratings are an indicator of bankruptcy, there will be bankruptcies across the board. If interest rates increased by 2%, half of the corporate sector would be wiped out.”
6. War and conflict
“There is increasing geopolitical tension…. Events like the current crisis in Crimea, could trigger a market crash, even if there is no war.”
7. Increasing poverty
“Overall world poverty has increased and whenever the poor become poorer, we can expect a social conflict.”
8. Cash and hyperinflation
“The surplus of cash that central banks and corporations are holding could end up damaging the economy.”
Wow, some bold claims there.
My favourites are 1 and 5. I mean, markets falling 30-35% and half of the corporate sector being wiped out sure sound worrying.
And you never know, Mr Bris may actually be right. We could be on the cusp of a crash.
Indeed, given how far the FTSE has surged during these last five years, plus with the Dow hitting 17,000 and the VIX ‘fear gauge’ running close to 20-year lows…
…heck, we must be overdue at least some sort of correction.
So perhaps NOW really is the time to take the contrarian view… and sell everything quickly before racing for the bunker
Or perhaps not.
Sadly, my ‘Market Crash Crystal Ball’ is a little cloudy today, just as it was last week, last month and last year.
Nonetheless I admit — selling shares can be a wonderful hedge against market slumps. But only if you are truly prepared to redeploy the cash back into the market at the right time…
Trouble is, too many investors sit on the sidelines with too much cash for far too long.
They wait for the opportune moment to get back in, then wait some more, and some more, and even some more… and before you know it, the opportunity has passed.
You see, only in hindsight can you pick a market top or bottom. Even Warren Buffett couldn’t do it during the credit crunch.
I mean, as far as I know, he was still investing throughout 2006 and 2007, just before the financial crash… and was still telling everyone to buy in The New York Times during the slump — albeit months before the market eventually turned.
So if Buffett can’t time the market, what hope do us mere investing mortals have?
So let me put all today’s worries, anxiety and gloom into perspective
Rewind 7 years to 15 June 2007, when the FTSE hit 6,730 and its pre-crisis peak.
Now, if you had been told back then about what was to actually happen during the next few years…
…that there’d be a savage bear market and the index would drop 50%, and that banks would go bust and require multi-billion pound government bailouts…
…you’d be forgiven for never touching a share ever.
However – and I know this is difficult to believe – even at the pre-crunch high of 2007, fortunes were still being created by ordinary investors actually buying.
Just check out the chart below:
Source: Capital IQ
While the FTSE is down 1% since 15 June 2007, quality blue-chip names such as Ashtead, ARM and Hargreaves Lansdown have each FIVE-BAGGED…
…just going to show there are always bargains waiting to be bought by smart investors… even when the doomsters are right and a market crash is just around the corner.
Anyway, our friend Mr Bris says:
“Too often we do not learn from history and do not act when faced with a crisis we know is imminent.”
Mate, I think what we can learn from history is that, rather than fretting about a market correction, waiting for a market crash, or simply doing nothing…
…a much better bet is to regularly and consistently invest in quality stocks at cheap prices and hold them for the long term.
At least that is what I will continue to do.
Let’s just see where we are between April 2015 and March 2016 — when the crisis is predicted — shall we?
Back to the present day, The Motley Fool's top analysts believe that only a handful of companies will actually make big gains this year, so I highly recommend that you read their brand-new report into What The Smart Money Is Buying In 2014.
The report offers in-depth commentary on building the 'perfect portfolio' for an unpredictable bull market, is completely FREE and without obligation. Simply click here to get yours sent to you instantly, while it remains available.
Maynard does not own any share mentioned in this article. The Motley Fool has recommended shares in ARM Holdings.