Page 5 - Best of the Best | The Only Prescription for Healthy Finances

Three scenarios that could
Three scenarios that could

kickstart a new bull market
kickstart a new bull market

F
y
,
g
nt
o
er
m
o
r
i
ha
n
a
m
er
nd
u
C
nd
a
o
er
Roger Montgomery, Founder and Chairman
g
o
R
M
Roger provides insight on how to navigate the market challenges investors face from time to time
and shares three possible economic scenarios and their policy responses.
As you’ve no doubt noticed, the world’s market commentators, Headlines including, “A US recession appears all but inevitable”,
brokers and analysts have turned decidedly bearish. And they have “Don’t be fooled by low P/E ratios”, “Alarm bells are ringing
good reason to be pessimistic. with global markets in growing disarray” and “Shares vulnerable
BUT THIS BEAR to more pain as recession fears intensify” represent merely a
tiny sample from the banner pages of Australia’s major financial
MARKET WILL newspapers alone. Expand the search globally and we’d be here
listing them for days.
EVENTUALLY END, TO What investors need is a game plan, and we’ve written extensively
offering a framework to help navigate the inevitable vicissitudes that
BE FOLLOWED BY THE challenge investors from time to time.
NEXT BULL MARKET. Here we consider three possible and reasonable economic
TO MY MIND, scenarios and their policy responses.
1. A serious recession
THERE ARE THREE Scenario one is a serious recession following the Fed’s enthusiastic
DISTINCT ECONOMIC response to persistent, if not stubborn inflation. If the U.S. economy
remains resilient and wage and price inflation continue to climb
SCENARIOS THAT despite central bank tightening, the U.S. Federal Reserve will be

COULD KICKSTART forced to tighten by more and for longer than the market currently
expects.
THE NEXT UPSWING. I recently suggested the market might be in the final phase of its
decline, marked by a third leg lower, and that central banks could
Someone once said, all news is just young people doing old things be forced to recommence Quantitative Easing next year if not
for the first time. And there is certainly an element of surprise, alarm, earlier, triggering a material rally in markets. But if the Fed is forced
and reaction to each data point or central bank utterance, in many to lift rates even higher – for example to five per cent – and keep
of the headlines. rates high through 2023, the final phase of the bear market may
linger a while. Bull markets don’t begin while central banks are still
raising rates, and V-shaped bottoms are an exception.

BEST of the BEST
www.montinvest.com
5