Calm before the storm?

by David Taylor

The past few weeks haven't brought us the same sort of volatility that we've recently grown accustomed to on global financial markets. The reason is simply that much of the bad news has already been 'priced into the market'. It ain't over yet though.

The G20 are still due to meet in early November and that's likely to provide us with the next wave of activity - if nothing happens in the meantime. The world's A-class finance ministers have given themselves until that time to, quite literally, solve the world's problems.

The ANZ bank has now put a probability on the chances the approaching storm could be a category 5 cyclone. The probability is an insignificant 5 per cent. What's interesting is that they've put a probability on it at all. It's now clear that even in the more conservative research houses - like a big commercial bank - that worst case scenarios are being looked at.

Out of interest, its worst case scenario involves financial panic and widespread bank failures. Its base case is that some sort of solution will be reached and have encouraged investors to 'buy the dips'.

My fear is that there is no middle ground. That is, that many believe there's either a silver bullet (which is highly unllikely), or some parts of the world are facing substantial financial pain for the next five to ten years.

The protests have already started around the world. And despite the fact Australia has escaped much of the damage so far, the Australian equivalent of "Occupy Wall Street" have taken over the eastern side of Martin Place rallying against corporate greed... and just about any other injustice. It's a relatively peaceful protest now, but just like the current economic environment, it could develop into quite a storm. 

David Taylor


The content in my blog is non advisory, please do not interpret this as advice in any way shape or form. These are just my thoughts and nothing I say should be acted upon.

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