War Time

Which thought is more frightening…

A) Car accident
B) Shark attack

I’m tipping you chose B.

Here’s why…

Terror is mental.

For most people, it’s easier to imagine being attacked by an aggressive set of teeth beneath the surface than being in a car accident.

Even though, statistically, you stand a much higher chance of being in a car accident.

But of course, if you have a history of car accidents, then (A) might be an obvious choice for you.

In the past 24 hours, the threat of war in the Middle East has escalated.

Consequently, the consequences have been easier to imagine!

And when threats (terror) escalate, they begin to feed on themselves, thanks to our imagination.

So how serious is the threat of war on the markets and the economy?

Bugger all!

In the past five years, we’ve been threatened by at least four potential theatres of war – China v America, Ukraine v Russia, Taiwan v China and now the Middle east v Israel.

And every time the markets have wobbled, they’ve quickly recovered.

(Please note – the unlikely effects on the markets do not discount the serious effects on humanity. I’m just delineating the economic effects which are usually less severe than we imagine.)

The harsh reality is, as a people we move on quickly.

Just think back to the incursion on Ukraine and what we expected of Putin. We held our collective breath for a moment…and moved on.

We do it every time…fires, covid, Ukraine, interest rates and now Gaza.

The perverse truth is the worst outbreaks of war have had very positive effects on the economy and markets.

For example…

Following WW1, we had the ‘Roaring Twenties’ which created a decade of unprecedented wealth, and one of the largest stock market bubbles in history.

And then at the conclusion of WW2, we had the ‘Baby Boom’. This cohort had such an impact on the economy for the next eighty years, it looked like a python trying to swallow a pig.

If we get an outbreak of war followed by a sharp sell-off in the markets, it will be more a coincidence than a consequence.

‘Events’ rarely result in economic destruction because they lack permanence.

Most destruction stems from terror…imagining what’s next.

Have a great weekend!

Adam