By Carmel Fisher*
It is said that by visualising our fears we can overcome them. The greatest fear that most of us have is the fear of public speaking, and apparently we can overcome this by imagining the audience naked, and visualising the applause at the conclusion of our speech.
If this theory is right, we should be able to get over our fear of investment markets by visualising all the things that could go wrong. A list of the scariest things that can happen to the US economy, compiled by CNN Money after talking to 27 economists, is probably a good starting point.
The Greek debt drama
Not surprisingly, a debt default by one of the troubled European countries such as Greece was cited as the number one worry. The reason a default would be scary is that it could trigger a 2008-like financial crisis. Thanks to the Greek parliamentary vote, we’ve not only been able to visualise this fear but actually strike it off the list, at least for the meantime.
The number two fear was another oil price shock, which would likely be triggered by political turmoil in the Middle East. Rising oil and gas prices would raise costs for businesses and slow down consumer spending which is vital for an economic recovery. Many economists blame rising oil prices for the slowdown in economic growth last year that led to talk of a double-dip recession.
The next biggest fear was a possible US default, just like Greece, if Congress does not raise the debt ceiling (giving the government breathing space to pay down debt).
US debt default: "I don't think so"
Basically the US government is so indebted that come August, it won’t be able to pay its bond obligations. This means that if everybody who owns US government stock all arrived at the door of the Federal Reserve and said we’d like our money back, the government would come up short.
Of course this scenario is virtually impossible to imagine, and even the Republicans who are threatening to vote against the ceiling being lifted, know that it would be economic suicide. Still, there is some brinkmanship going on and the market has been distracted by the debate, even though they know what the ultimate outcome will be.
China, budget cuts and Mother Nature
Aside from these three main fears, the economists were not that concerned about other big issues on the list like a slowdown in China, budget cuts or another natural disaster.
This is pretty encouraging. The fact that markets have faced and dealt with a range of big concerns over the past few years should give us confidence that they will deal with others as they arise. A prime example is the share market’s rally at the end of June, regaining most of the losses of the previous seven weeks, because investors had confirmation that the Greek austerity vote would be passed. Everyone knew that Greece wouldn’t default, but still investors let fear get the better of them.
Having read what 27 economists fear the most, and visualised them, I don’t think the future is too scary.
*Carmel Fisher is managing director of Fisher Funds Management.