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Better watch out for fake crises

A well-respected investment commentator has warned individuals to be wary of fake economic crises when making their investment decisions.

“A lot of the crises we have to put up with are fake crises,” investment commentator Dr Don Stammer told delegates at the recent 2018 Australian Investors Association National Conference held on the Gold Coast.

Stammer cited the speculation over the economies of China and the United States in 2016 as an example of what he was referring to.

“Remember in the first half of 2016 people were saying China is going to have a hard landing and America will have a double-dip recession,” he said.

“[On the back of this forecast] the share market fell 15 per cent, the Australian dollar plunged, and it was all hype. It was all one investor talking to another and building it up. It was totally a fake crisis.

“Look at the figures from Chinese industrial production, look at the Chinese imports of iron and steel – they were massive and there was no downturn of significance.”

Stammer selected the 2011 concerns over European sovereign debt as another instance of a fake crisis that caused a reaction from investors.

“In 2011, people talked themselves into believing that Europe would have a sovereign debt crisis because of Greece and Cyprus,” he recalled.

“But Germany was strong enough to carry Europe with it and it was a needless worry.”

According to Stammer, a third example of a fake crisis investors need to be aware of was the expectations surrounding the Australian economy in 1994.

“Inflation in Australia had dropped in 1991 from an average of 8 per cent to about 2 per cent and then the economy started picking up and people said inflation will go back up to 8 per cent,” he noted.

“So the 10-year bond rate went from 6 to 11 per cent in a few months, shares fell 20 per cent, and people said it’s a crisis. Well it was an absolutely fake crisis.”

Stammer pointed out there are real crises that investors did need to be mindful of.

“Think of 2008, but try to separate the real from the fake,” he advised.

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