Wednesday, 30 June 2010


Bad economic news from every corner of the world has converged over the last two days to send stock markets into a tailspin and leave them on the edge of a major breakdown.   

Over recent weeks, evidence has been growing that the world's economic 'recovery' is faltering, reawakening fears that the rebound we've seen has, in fact, been more illusion than reality.  There is also a fear among investors that Greek and other European countries' continuing debt problems may blow up into a massive crisis.  Until this perception can be reversed and investors reassured, markets are likely to remain under persistent pressure.

I've warned repeatedly in this space about the extremely high probability of a new downleg for world markets. Regular readers will have noted my major call, made here a few weeks back, that we likely saw a peak for the stock market on April 26th which will not be surpassed for some years.  

If my forecast for the economy is correct, the April top should hold for a decade and stocks will ultimately lose a huge proportion of their value. 

I'd caution that what we are dealing with here are, of course, not certainties but probabilities.  The market may ultimately hold, and a rebound at this point is perfectly possible, as shown in the chart below.  (A number of scenarios were mulled over in last month's post). The question for the investor is, as always, 'what is my potential risk, versus, what is my possible reward'?  When risk vastly outweighs reward, it's time to take chips off the table.  

In my view, whether it evolves stealthily or as an all-out crash, a downward move which wipes out most of the huge gains made over the past 18 months is not remotely implausible given the perfect storm which appears to be gathering.  

This could therefore be investors' and pension holders' last chance to exit the markets with their finances intact.  

As ever, the true economic picture is represented in stock market prices.  I've provided a chart here as illustration of the current risk, with clear guidance on where the exit and re-entry line sits should you decide to take action.  

There is also a link to a 'live' version of the chart which you can follow anytime to see the market's progress and help you with any decisions you may need to make.  Also, you might be interested in checking last month's Investment Outlook which suggests some ways you can protect yourself.

Please click on and open in a new window to enlarge

Click on this link for a 'live' version of the above chart.

I'm due to make my scheduled monthly post this coming Sunday, July 4th.  If, prior to that, the market collapse accelerates I will update as necessary.