Do markets' wobbles mean Hugo was right?

THE troubles being experienced by global stock markets could be a sign that a senior local investment manager was correct about predicting a world crash. In his book The Final Crash, which was launched in May, Hugo Bouleau, said that a crash in the market could be six months away.

He is remaining coy as to whether his prediction will be proved right, but the fact that Wall Street suffered its worst performing week in four years at the start of this month coupled with the ongoing problems seen regularly in the European and Japanese markets did not surprise him.

'The recent market sell-off is not a sign of an imminent crash but it is likely to be the first of many pulses before a major stock market slump, rather like the rising intensity of tremors before an earthquake.

'Crashes like those seen in 1987 - when the stockmarket lost over a quarter of its value in one day - are very rare and are unlikely to be seen again.

'This is because the market can now close and utilise so-called ?circuit-breakers? to buy time and prevent a rout.

'Today's market action appears reasonably stable whereas we would have expected a follow-through sell-off if investors were really nervous.'

Analysts have warned that markets could remain volatile for weeks.

It is expected to stay that way until the full extent of the crisis in the US sub-prime mortgage market is unveiled and there is more indication as to any danger of infection in the wider credit environment.

'Investment professionals are only human and can delude themselves that any problem area can be ring-fenced such that the rest of the economy is immune from contagion.

'It is a paradox that when things are going well they describe the economy as being ?flat? or ?globalised?, implying that everyone and everything is totally interlinked.

'However, anything that goes wrong can be conveniently pigeon-holed or ignored.

'This has been the case for the US housing market which rolled over in 2007. While thousands of ordinary Americans are paying the price of uncontrolled and unethical bank lending. It is not they who make the headlines but the Wall Street wizards who packaged the public's high-risk debt into investments for the likes of pension funds to swallow.'

Mr Bouleau, who writes under that pseudonym to distance himself from his employer because the views he expresses are his own and not those of his bank, said that he had until October to be proved wrong.

'Since 1934 there has been a distinct four-year cycle of healthy sell-offs in markets and the last time we were meant to see a significant correction was in 2006.

'The last time it missed the fourth year was in 1986 which was of course followed by the crash in October 1987.

'Whether I have my ego bruised or massaged is of little importance. My principal concern is what happens after a market slump.

'Japan is the best recent example of an aging population that witnessed a stock and property market boom and bust.

'The Japanese economy has still not recovered since its markets peaked in 1989.

'The ramifications of a slump in the West have much more serious implications as developing economies are becoming more powerful and vociferous.

'While we have diminishing access to commodities and cash, these countries have tied up agreements for raw materials for decades to come while their financial surpluses are in stark contrast to our indebtedness.'

* For more information on The Final Crash, go to www.finalcrash. com