I've had dozens of emails from experts over past weeks, all trying to pick when the US will raise interest rates and how far this will crash the stock markets.

What this says is that investors are risk averse and the financial markets are so sensitive to a 0.25% increase in cash rates that they are fragile.   For years the system has relied on US easy money, and now it's attempting to deal with a return to normality.   Whether it's this week or eventually, rates will undoubtedly go higher, as the US needs inflation.

In the 1970's easy money flowed into higher wages, which put   upward pressure on goods prices, so inflation rose.   Today's low rates leads to excess production at a time of weakening demand so prices don't increase much and inflation is low.   Low inflation means low interest rates but higher bond, stock and real estate prices.

In 1923, W D Gann said stock prices lead business conditions by six to eight months.   The markets move ahead of actual events, and it's only some time after that we understand the real cause (so don't believe the newsreader saying that investors are worried about China – then tomorrow they're not?).

Does the fall in stock markets signal a weaker environment in the near future? On the surface, an economic 'adjustment' looks like it's already underway, although the magnitude is hard to determine.

What do the experts say?   That is, the ones who totally missed the last crisis in 2008/09.   Investment banks, brokers, even financial planners are expected to be bullish; buy on the dips, average down your cost, it's still cheap compared to the past.   This approach has worked in the past few years as markets were trending up, so you need to be sure that trend is still intact.

Market charts and reasoned analysis says stock markets are overleveraged, unsustainable and likely to correction.   How far?   Depends on who you read, but perhaps from a 'correction' of 30% on May prices or a 'crash' of 80%.   One analyst says the stock markets could correct sharply in the short term (remember Black October?) but the next crash will stem from default on the bonds markets, (like in the late 1980's) and including some Government bonds.   A bond crisis may not occur for some time yet.

Another analyst says a lack of liquidity causes market moves.   When liquidity is plentiful asset prices rise, but when scarce, asset prices fall.

Problems are evident in these areas:

- China's economy is slowing rapidly (how would you know what the real number is anyway?)

- India is also slowing very fast

- Commodity prices have fallen significantly and will have major flow-on effects for producers and economies (eg., coal and oil)

- A big slow-down in global trade (watch the D J Transport Index as this shows goods are not being moved around the world)

- Excess industrial capacity is producing more goods which are not being sold

- Credit quality is deteriorating

- Credit availability is tightening.

Will events play out like I think?   Of course we can't predict the future, but economies always move in cycles.   It appears to me that the end of a number of cycles may be close.

What could you do?   Time to consider your investment strategy, take some experienced unbiased advice, review your investment and retirement portfolios, and do some forward planning for your business, even factoring in a recession.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.