Standard Life thinks that this is a mini-cycle within a broader uptrend John Calverly at American Express says "no need to panic" And so on.So the consensus is unusually clear. Perhaps unsurprisingly I could not find a single specific bear note on the markets last week - though Smithers & Co has been consistently arguing for some time that world equities are overvalued. But the most important question is the one posed by Chris Watling: what could go wrong?He gives three answers. One is that market volatility will rise - that is, shares will become inherently riskier A second is that equities are clearly overvalued.
And a third is that there is a slowdown in company earnings growth. But he reckons that all three are unlikely.My own feeling is simply that the markets got too carried away a month ago. They were faced with rising American interest rates, rising American inflation and much higher-than-expected oil prices. These make a pretty toxic mixture but the markets ignored them. So what has happened is just an adjustment to previously known concerns - a "correction".
But October is a tricky month and we are not through it yet.. The current economic situation presents a perfect opportunity to solve most of America's problems all at once. In one move the US government could act to slow wasteful energy consumption; encourage development of alternative energy sources; improve the budget deficit; and - ultimately - reduce the trade deficit. What's more, it could seriously reduce the perceived geopolitical risk to the US economy by removing its dependency on Middle Eastern oil, and reduce the diplomatic strains due to emerge as a result of competing with China for energy in Russia, Africa and South America The move? An oil import tax. If the US government were to move now and lock in current crude prices as a minimum, then while the US consumer would forgo a windfall from lower oil prices going forward, the US producer would gain sufficient confidence to invest in the more expensive developments such as tar sands and oil shale.
