Foolish thought of the day – Weds 12th Oct 2011

Is that a sense of relative calm we can sense on world sharemarkets? Not if the Slovakians have anything to do with it.

a woman

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Is that a sense of relative calm we can sense on world sharemarkets? Maybe not. As of writing, the S&P/ASX 200 index is off almost 1%, with renewed European worries and a disappointing 3rd quarter result from U.S. aluminium giant Alcoa Inc. (NYSE: AA).

Overnight things were so much calmer. In U.S trade, the S&P 500 posted its smallest move since August, with Bloomberg reporting "optimism about third-quarter corporate earnings overshadowed concern Europe's debt crisis is worsening."

Boring shares
How utterly boring. A few shares went up a little, a few went down a little, shake it all out, and the end result is the Dow down 17, the S&P 500 flat and the Nasdaq up 17.

Too much more of this flatness and we'll be out of a job…

It probably won't last.

Slovakia, a country of just 5.4 million people, is threatening to derail Europe's enhanced bailout fund. They are the only country in the 17 nations that use the euro yet to approve European Financial Stability Facility (EFSF).

Expect the doomsters to be all over it, predicting the end of the euro, the Eurozone, another sharemarket crash, and indeed, the end of the world. Carbon tax? What carbon tax?

By hook or by crook….
Who knows how it will all shake out? Optimistically, we here at The Motley Fool, by hook or by crook, think a solution will be found.

We're not alone, with Bloomberg quoting  Tim Ash of Royal Bank of Scotland Group Plc as saying…

"Eventually a yes vote will be secured. Does Slovakia really want to be alone among 17 euro-zone members states on this one, and when the future of Europe is at stake?"

When push comes to shove, politicians have a way of making things happen. We saw it in the ugly U.S. debt ceiling negotiations, and we'll likely see it again in Europe.

Credit hangover
The bigger story is the state of the global economy, and its future growth prospects. It will take years more to work off the mass excesses of the 2001 to 2007 credit boom. We're only 4 years into a process that will likely take a decade or even more.

Here in Australia, we may have been spared the worst of the global crisis – plunging house prices and stubbornly high unemployment – but it's not all plain sailing for the lucky country.

Here too, we're likely in for a period of rising unemployment, falling house prices, and generally sluggish growth. Boring it might be, but in the context of the messes in Europe and the U.S., we should be happy.

Happy investors
And, come 2021, sharemarket investors might be even happier, with an Australia and New Zealand Banking Group (ASX: ANZ) forecasting equities will overtake residential property as the strongest performer over the next 10 years.

But not before we're hit with more volatility, likely coming back soon. Over to you, Slovakia.

If you are looking for more investing ideas, you can sign up to receive The Motley Fool's free investing newsletter called Take Stock. Click here for your free subscription.

Bruce Jackson has an interest in ANZ. The Motley Fool's disclosure policy is happy.

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