If you watch TV and read the papers, the world is falling apart. Most notably, Greece is drowning in debt. If it eventually defaults despite all the current efforts to save it, the effect will be worse than Lehman Brothers' failure, some commentators say. Then there is Spain and Italy, both of which are also heavily indebted. If these countries default too, how many banks can remain standing?
And what of the United States, where Congress is locked over whether to raise the debt ceiling? What if the ceiling isn't raised by the Aug. 2 deadline and the world's largest economy joins the default parade?
The dangers seem enormous - but I'd strongly suggest that you take a deep breath and relax. The world's debt problem is bad but not terminal. The panic you see is part of the solution, and, in my view, it's likely to provide a splendid opportunity, before the year is over, to buy into the next bull market.
Consider Europe's supposed problems. One way to view the European Union is as an extreme version of Canada, with individual countries taking the place of provinces. Collectively, European countries benefit from the EU, just as Canadian provinces reap advantages from Confederation. Both political alliances remove trade barriers, ease labour mobility and create a large single-currency zone.
The problem is always how to divide the benefits. Canada has had more than 140 years' experience in this. Europe has only started. While there's lots of screaming and demonstrating, the problem is not life-threatening.
To make this more vivid, you can view the threat of Greece leaving the EU as comparable to Newfoundland, in its pre-oil days, warning that it will leave Confederation unless it gets more money. Or Quebec demanding more federal equalization payments.
Once we see Europe as a large Canada, we can view Germany as Ontario, France as Quebec, Spain as Saskatchewan and Greece as Newfoundland. Seen through this lens, the wrangling is reduced to something we can easily grasp: Money.
In daily life it's called a commercial dispute and is dealt with by negotiations or the courts. In confederations or political unions it's called politics, and it's dealt with by demonstrations, speeches and brinksmanship.
The crowds in the street? The tear gas? The panic? All theatre - but useful theatre.
You see, when leaders of large bureaucracies - whether countries, labour unions, or central banks - need to implement painful changes, they must be able to credibly explain to their constituencies that much worse things will happen if the changes aren't adopted. Increasing the retirement age, imposing higher taxes, reducing the number of civil servants - none of these reforms will be accepted unless fear of something far worse acts as a motivating force. To achieve agreement, panic is often a useful negotiating tool.
But what of the U.S. debt? Recently I saw a chart showing that today's U.S. debt as a percentage of GDP has been this high only once before - in June, 1942.
That date coincided with the Battle of Midway and was also the beginning of a bull market that saw the Dow double in four years, as the stock market anticipated the U.S. win over the bad guys. Yes, at the exact moment when everyone was panicking, the biggest problems were already being fixed - and the market saw it.
I believe things are being fixed now too, and the panic is part of the repair mechanism.
To be sure, the market's decline isn't over. Leaders in Europe, in China, and in the U.S., still need some panic to sell bitter medicines to their constituencies. But none of these places is a basket case. Their problem is politics - how to distribute the pain - and panic will help sell the solutions.
I think the market will continue to reflect this. But I wouldn't be surprised to see the bearish tendencies cresting and fading before year end. Once the panic hits its peak, we should enjoy a wonderful buying opportunity.