END OF WORLD NOT NIGH

WHOA! We got whacked yesterday after Wall St plunged overnight. But let’s not lose all touch with reality.

It’s a lot more complicated and unpredictable than the hysterical simplicity. That share values right around the world are all going to go plunging over a cliff, and the Australian and world economies are going to slide deep into recession.

That, in a sense, yesterday was really only the foreshock ahead of, the forewarning of, the GFC or 1987-style real market earthquake to come.

I’m not saying it absolutely won’t be; from Hong Kong on one side of the Pacific to a tweeting President on the other, and then across the Atlantic into Europe and the Middle East, there are so many things that could tip us over the edge, you’d be much safer predicting exactly that outcome.

It’s a bit like how some economists are continually predicting recessions; yes, you’ll end up predicting six or seven of the actually only one recession, but you will eventually, ahem “correctly” predict that one recession.

There are three fundamental dynamics that yes, as I (and many others) have been writing set us up for almost never-ending volatility – Wall St up 400plus points one day; plunging 800 points a day or two later. Or the reverse.

Global share markets, even after recent falls, are close to not just record highs, but levels way above what we’d ever seen before.

We struggled for 12 years to get back to our pre-GFC record high, finally doing so at the end of July last month – only to promptly drop. But even after yesterday we are only 6 per cent below that peak.

Wall St’s the same. The Dow is down 7 per cent from its recent peak. But remember, that peak was nearly double its pre-GFC high.

Secondly, all economies around the world are struggling. Germany, the core of Europe, went backwards in its latest quarter; China has slowed to at best half the growth pace of recent years. And it might be worse: the China miracle might be over.

The US is either just OK or teetering. And then add the trade and perhaps currency wars between the two big guys.

What bridges the “gap” between the world economies and world share markets is the nearuniversal near-zero and even negative interest rates.

It’s also the biggest worry for global investors. After the GFC rates could be slashed to boost share values and economic activity. They were and they did. They can’t now.

Our economy continues to puzzle. There’s a lot of doom and gloom but yesterday’s jobs numbers showed another surge in full-time (as in, real) jobs.

Don’t forget December. Wall St plunged nearly 20 per cent. But then it came straight back – surging 25 per cent. We followed the drop – down a more modest 8 per cent; then came up the same 25 per cent (to finally hit that new record).

True, it was mostly thanks to the Fed head promising to cut rates rather than threatening to hike them. But the US and Chinese economies were pretty much as they are now.

Bottom line: more volatility is the predictable bit. Where it ends up is anyone’s guess. And that could be driven by one of the many available left-field “surprises”.

Neither individual Aussie investors nor Australia can do much anyway. We all have to essentially ride out the turbulence.