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Could the Next Recession Be a Disaster?

October 6, 2017
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There is an old saying; “the bigger they are the harder they fall.” The same adage usually applies to economics as well, with meteoric rises in the markets being matched by equally large falls. The past year has seen the markets consistently breaking index records, so does that mean we can expect a major recession when it comes?

According to money managers PIMCO (in an interview with Business Insider):

“While the current macro environment and outlook appear better than many of the younger market participants can remember, the last time a similar combination prevailed was in 2006 – and that didn’t end well,” wrote PIMCO’s Joachim Fels and Andrew Balls in their outlook for the next six to 12 months.

To say “it didn’t end well” is a gross understatement. The last recession was disastrous.

While markets remain up now, everyday seems to bring news of another crack in the armour so to speak. Just this morning, Reuters reported that:

Italy’s debt with the European Central Bank hit a record high in September, data showed on Friday, suggesting cash is flowing out of the euro zone’s third biggest economy. Its net debt to the ECB’s Target2 payment system, which settles cross-border payments in the euro zone, rose to 432.5 billion euros ($506 billion) in September from 414.2 billion euros in August.

The news out of Europe has generally been a thorn in the market’s side: Brexit, the Catalan independence crisis and populist elections that have threatened to damage the EU’s unity even further have all been problematic. Yet this news may be the most harrowing in several months. Another major European economy getting into debt trouble may be the tipping point for the continent’s fragile union.

Investors should keep up to date with global events as they may pose the greatest threat to the bull market. If and when the market does turn, there are indications that it may well be a hard fall.

To read Business Insider’s interview with PIMCO, click here.

To read Reuters’ article about Italy’s debt, click here.

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