When is the next Share Market Boom?
As we move towards the end of 2012, most investors around the world are exceedingly nervous as they watch unfolding events. It doesn’t look too good. Four years after the start of the Global Financial Crisis there is still no end in sight. But end it will. Investor confidence will return and share markets leap forward with unbounded optimism – just as they always have in the past. The question is: When? There are a few problems to sort out and a big realignment needed in investor sentiment. But 10 years from now we are likely to be in one of the strongest bull markets we have ever seen. It will be driven by strong growth in developing countries and scientific innovations ranging from robotics, new manufacturing process, technological change, genetic engineering, medical and bio-tech advances, an agricultural boom and other factors we haven’t thought about yet. In the short term there are some issues to be resolved before the longer term can take hold. The Euro is going through what looks like its death throes. Trillions of Euros are being shuffled around, printed, lent and borrowed to try to avoid a demise that appears to be inevitable. Europe, like the US and Japan, is suffering from excessive debt HealthSpeak
spring 2012
and there are no easy answers. That debt has to be dealt with and someone has to pay. It will be borrowers, lenders (via defaults or high inflation) or long suffering taxpayers or all of these. How it will work itself out is unknown – it could be a long drawn out affair or life support could be turned off quickly. The latter option, which would probably mean the complete collapse of the Euro, looks increasingly likely. Some economists suggest we should put it out of its misery and rebuild something new. This would be catastrophic in the short term but allow a stronger recovery later on. Meanwhile the US Government is facing a fiscal cliff. It is saddled with debt and by September the old debt ceiling imposed by Congress will re-emerge as an issue – right in the middle of an election campaign. If nothing can be renegotiated, come year end there will be huge spending cuts and tax increases, already legislated, which will surely drive the US back into recession. China is slowing down, in part because it wanted to curtail inflation and a property boom and in part because it is a maturing economy where growth rates of 10 per cent a year are impossible to sustain. Japan is the most indebted of all developed governments with
Economy
debt equal to 208 per cent of GNP. Much of this is maturing over the next two to three years. As someone said recently, Japan is a bug in search of a windscreen. Over the next 12 months all these issues will come to a head, if not before. Hang on to your brollies. So will we see a rebound after that? Old-timers such as John Mauldin, author of The Little Book of Bull’s Eye Investing, suggest that this bear market will probably hang around for a while yet. As the accompanying charts show, the last bull market started in 1981 and lasted 19 years. They were glorious times. The last bear market started in 1965 and finished in 1982 – 17 years. Since 2000 we have been in another secular bear market. It started in 2000 and if history is any guide
David Tomlinson
Ten years from now we are likely to be in one of the strongest bull markets we have seen
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