The credit market is still in turmoil, economic growth on both sides of the Atlantic looks likely to be weak in 2008, and the prices of a variety of assets are worryingly high. Asset prices should already have discounted that negative outlook for next year, and it is foolish to try to predict their path too precisely, but for the average investor trying to manage their wealth, it is worth considering a scenario in which the slowdown becomes worse.

A shock in the US housing market has hit construction, produced losses for banks and lenders, and caused a reappraisal of the right price for risk. Financial sector profits have been hit and credit will be harder to come by. The next stage could be a wider slowdown in investment and consumption that hurts corporate profits still further, causing layoffs and rising unemployment, and therefore still weaker US demand. In the worst case, the result could be a global recession.