I was interested in the comments made last week by a senior bureaucrat about the prospect of a second recession wave in the GFC (Global Finance Crisis).

I have held the same view now for many months-that a second hit is a real prospect. Yet equity markets bounce ahead with abandon. For some, this will end in tears.

Please take a look at the chart below, which has been my guiding light for several weeks and maybe even months:

Chart 1



click here to enlarge

Our government here in Australia also warns us that it is not all over. Unemployment is to increase, inflation is to rise. These in themselves may not bring about another tsunami. What may cause the next leg down is not of real deep intrinsic interest to me-although I do contemplate various scenarios-but I do not have the courage to write about them for fear of being run out of town (although that has not stopped me in the past).

But I don't want to be a party pooper and I am happy for those who are happy buying the markets at the moment, as they obviously are happy to do so. I cannot be a missionary for all causes in this complex world.

Will it be a tsunami? Well, I don't know. And I am not sure anyone knows with any confidence. You see, economics is not a precise science. Many economists may agree in broad terms about a range of possible scenarios" but few will get timing right.

I already feel as if I have been on the sidelines for an eternity, although that does not concern me because the big money is made by getting the big picture right-plus I just don't like risk when it can be measured and managed. But again, there has been nothing about this market in recent months that has really excited me so I am really happy on the sidelines. I know I can be fully invested when the time is right.

So tsunami or not, second coming or not, I will just wait until it is time for me.

Enjoy the ride.

Tom Scollon
Chief Analyst
Trading Tutors Team