Who knows, maybe it will. Maybe this time, it is really different.
Certainly, the signs are positive. The global economy is growing more
quickly than expected, but at a measured, sustainable rate. Some economists
say we have entered into the Goldilocks zone.
The Wall Street Journal
reported recently that for the first time since 2007, all 45 countries
tracked by the Organisation for Economic Co-operation and Development
(OECD) are on track to expand for the year, with 33 of them forecast to
accelerate from a year ago. That’s the most countries in acceleration mode
since 2010. The OECD said this was due to a supportive environment of
low-interest-rate stimulus from central banks and the gradual fading of
rolling crises that had slowed growth in various regions.
There is no sign of a recession on the horizon. Since almost all market
crashes precede an economic meltdown, that suggests there is no reason to
expect a big selloff any time soon.
Consumer confidence is high. A report released this month by the University
of Michigan put the current level of its consumer confidence index at 97.6,
the highest since January. That was way ahead of economists’ expectations.
A spokesperson for the survey attributed the big gain to a more positive
outlook for the overall economy plus more favourable personal financial
What it all boils down to is that no one seems very worried during these
dying days of summer. Well, no one except me. There are three things that
trouble my sleep at night. If you don’t want to worry about them as well,
then stop reading now.
Still here? Ok, here goes.
Worry #1 – Politics
There are a lot of moving parts in the political arena right now, any of
which could cause trouble down the road. North Korea hasn’t gone away. The
civil war in Syria drags on. ISIS launches more attacks. The NAFTA
negotiations are venturing into areas that could deeply impact our national
well-being. The Trump White House has become a messy revolving door, and
President Trump himself is increasingly isolated and at war with his own
party. Congress is gearing up for September fights over the budget, the
Mexico wall, and debt ceilings that could threaten another U.S. government
shutdown. I could go on, but that’s enough nightmares for now.
Worry #2 – Debt
Everybody owes everybody else too much money. In Canada, our household debt
ratio is near an all-time high, with each of us collectively owing $1.67
for every dollar we earn. The federal government continues to rack up huge
deficits, with no sign of a balanced budget on the horizon. In the U.S.,
the Federal Reserve Board released a report earlier this month stating that
credit card debt in that country had topped US$1 trillion. China’s shadow
banking system is carrying debts of about US$8.5 trillion according to an
estimate earlier this year from Moody’s Investor Service.
In June, the Institute of International Finance estimated total global debt
to be a mind-boggling US$217 trillion. Put another way, that’s 327% of
global GDP. Some economists say all that debt doesn’t really matter. Well,
it sure did in 2008 – ask the folks who used to work at Bear Sterns and
Lehman Brothers or the people who lost their homes in the financial
meltdown. It will catch up with us again at some point.
Worry #3 – Valuations
Stocks are expensive. No one denies that. The current price/earnings ratio
for the S&P 500 Composite Index is 24.69. The historic median is 14.66.
Sure, the index could go higher and probably will. But the reality is the
p/e ratio now is higher than it was prior to the 1929 crash. We’re not
following the traditional maxim for stock market success: buy low, sell
high. Instead, we’re buying high with the hopes of selling even higher.
That usually ends badly.
Having voiced all my concerns, I have to add that I don’t foresee a market
collapse any time soon. But the negative forces are building, and they
can’t be forestalled forever.
Gordon Pape is one of Canada’s best-known personal finance commentators and
investment experts. He is the publisher of
The Internet Wealth Builder and The Income Investornewsletters, which are available through the Building Wealth website.
For more information on subscriptions to Gordon Pape’s newsletters,
check the Building Wealth website.
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© 2017 by The Fund Library. All rights reserved.
The foregoing is for general information purposes only and is the opinion
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