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.

Or more specifically, terror is a figment of our imagination.

(And I say that with the greatest of respect)

You see, 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?

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.

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 untold wealth, sending the markets to almost immeasurable heights.

And then at the conclusion of WW2, we had the ‘Baby Boom’. For the past eighty years, this cohort has created the economic equivalent of a python trying to swallow a pig.

It’s caused a lot of indigestion from pre-schools to aged care but also catalyzed massive economic growth.

And then we had the pandemic (biological warfare). After the markets tanked in 2020, ultra-low rates and steroid like rescue packages set every economy on fire…lasting much longer expected.

The markets are vulnerable right now because asset prices are at stratospheric heights and rates will likely remain higher for longer.

All thanks to eye-watering levels of government spending and mountains of debt that look more like a nuclear bomb about to detonate.

The biggest threat of all…option (C).

Have a great weekend!

Adam

Back paddock – it’s easy to spend it when you’re young but hard to earn it when you’re older – Jim Munnoch (RIP)