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Inside investment: Pouring oil on troubled waters

A US recession could be short, shallow and relatively benign for the rest of the world if oil price falls in 2008.

In the immortal words of the narrator in the British comedy classic Withnail and I: “Even a stopped clock tells the right time twice a day.” Market commentators should have that maxim tattooed on to their foreheads, lest they get carried away by their successful crystal-ball-gazing. With that caveat duly out of the way, prepare for a boast or two.

This time last year this column predicted that during 2007 the debt binge and the boom in ever more complex structured credit would both come to a sticky end. In June it said that the credit cycle was turning almost imperceptibly. Two months later we had scored a notable hat trick.

However, it is now time to give up on the doom and gloom. Quite frankly, there is far too much of it around. Suddenly, those who were wearing rose-tinted spectacles and writing about a new economic order in which the business cycle had been abolished have turned into bears. Those who were in the bearish camp are now gleefully predicting a financial apocalypse on a scale not seen since the Great Depression. To borrow a phrase from Michael Winner: “Calm down, dear.”

One thing most economists now agree on is that the US will have a recession.

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