EDITOR'S LETTERMerryn Somerset Webb
How worried should we be about the recent market falls?
In the two weeks I have just been away – with no phone signal and no Wi-Fi – I can honestly say that I didn’t think about the stockmarket once. Not once. However, you won’t be surprised to hear that I have been thinking about it pretty much non-stop since my flight from Lerwick landed and I saw the Sunday papers.
To me it looked immediately as if the last fortnight has been one of the more dramatic of the last seven years – one that has laid bare some of the fallacies of the great global recovery and stockmarket boom. But that’s not how everyone sees it.
The vast majority of the commentary (outside MoneyWeek!) suggests that the huge market falls (China is down 22% in four days) mark nothing more than a “healthy correction”. If you are in for the long term, says more or less everyone, you have nothing to worry about. Buy on the dips and look forward to a prosperous future – there is no global recession on the horizon and with no recession there can be no bear market.
This is mostly nonsense. Firstly, you can have bear markets without recessions. It isn’t low growth expectations that makes stockmarkets fall. It is stocks priced for high growth, suddenly bumping into the reality of low growth and possible deflation. Anyone who has ever read Russell Napier’s great book on bear markets – Anatomy of The Bear: Lessons from Wall Street’s Four Great Bottoms (if you haven’t, now is the time) – will know that all the great bear markets have been caused by deflation anxiety taking hold.
• Read the full editor’s letter here: How worried should we be about the recent market falls?