EDITOR NOTE: So, what haven’t we heard? In an Oxford Economics study--that’s coming from a think tank by the way--in which 162 global business leaders were asked questions about the likelihood of another financial crisis occurring in the near term, the average answer was 20% probability. We’ve heard worse. 20% is not compelling. Not surprising either. And these numbers, not unlike the Fed’s, tend to account for everything except for the one thing that matters: the day-to-day experiences of people, and the economic conditions that impact them, good or bad. Are these “leaders” talking about stock market valuations, inflation, the ramifications of both on general wealth inequality? Though it’s not saying anything that we haven’t heard before, it’s still worth a read, especially considering that many global strategists, like the one in Citibank, saying that now’s an opportunity to buy the dip not in stocks but gold.
What probability do you give that there might be a new financial crisis? This month, the number crunchers at Oxford Economics, a research group, asked 162 global businesses this question. Their average answer was 20 per cent over the next two years.
That is twice as high as the perceived risk of a second global wave of the Covid-19 pandemic and also, sadly, the probability of an early effective vaccine arriving.
These fears already have tangible consequences: they pushed down business sentiment more in this month’s Oxford survey than hard data justified. “Our analysis suggests that financial crisis fears account for much of the gloom,” said Jamie Thompson, the poll’s lead economist.
This should concern investors, although not because a financial crisis is likely to explode right now — at least not in the headline-grabbing style of 2008. At least two factors mitigate that risk.
First, the US Federal Reserve and other central banks have made it clear that they will do “whatever it takes”, to cite Mario Draghi’s 2012 promise, to keep markets functioning through the pandemic. Events in March were a case in point: when the US treasury bond market froze, the Fed dived in with extraordinary liquidity support.
Second, banks are not the source of this year’s economic…
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