WORLD stock markets would be far lower than they are but for rising commodity prices, boosting oil and minerals companies and producing the multi-billion pound bid for Rio Tinto.

The exciting commodity story, linked to the growth of China and India, has diverted attention from the steady stream of credit-crunch loss announcements coming out of the banks.

But the full horror is emerging and, as Money editor Kathryn Cooper reports on page 1, the European arm of US investment bank Morgan Stanley has turned bearish after being one of the first to predict the summer downturn and autumn recovery.

The Morgan team has joined the growing chorus convinced the credit crunch will be deeper than expected, and is spreading through other industrial and commercial sectors to take us to the brink of recession.

Morgan’s revised view has also been prompted by central banks’ apparent reluctance to cut interest rates, though since it was published the Bank of England dropped a broad hint that UK rate cuts are a certainty by next spring.

But note the small print in Morgan’s analysis: “An overshoot on the upside is a distinct possibility in the latter stages of the bull market, so we are not turning outright bearish.” That is called hedging your bets, and suggests that we may yet see the FTSE 100 index hit a new peak before darkness descends.

In the world beyond share prices, HSBC bank chairman Stephen Green is warning that “prolonged weakness” will probably run into 2009. “I don’t think anybody knows if we’ve reached the bottom – the US economy is a conundrum,” he said.

There has been a strange mismatch between the increasingly gloomy tone of such forecasts and markets’ continuing buoyancy. Either investors are in denial or they think the predictions are wrong.

The huge swings in the Footsie, New York’s Dow Jones Industrial Average and the Nikkei index in Tokyo point to intense disagreements among investors. My feeling is that the optimists are gradually being squeezed into the pessimists’ camp as each jump in share prices is met with another plunge.

This is classic bear-market behaviour, and is likely to produce a mighty sell-off – just don’t ask me when.

In July, I told readers to expect a succession of 100-point falls in the Footsie, and we’ve had that in spades. Now brace yourselves for drops in the region of 500 points before the market finds a bottom, at which point only the brave will buy and shares will dribble along until confidence rebuilds. That seems to me the way 2008 is shaping up.

Do remember, though, this iron rule: when forecasters – me or Morgan Stanley – get it right a couple of times, their next prediction brings them one nearer to the inevitable moment when they are going to get it wrong.

Scare tactics

NEXT time you set off for one of those daunting reviews of your money, make sure you take with you a copy of the latest musings from the Association of Independent Financial Advisers (Aifa).

Despite the less-than-riveting title, Consumers: Discussions of Duties, Aifa director-general Chris Cummings has laid out a blueprint for the way advisers and the public should approach one another.

Cummings bluntly admits: “Some firms have failed consumers,” adding that impenetrable language and hiding behind official rulebooks have lost advisers and providers the public’s trust.

The paper declares: “We should have no truck with ‘buyer beware’, but build our appeal on an understanding of the necessary equal relationship between firm and consumer. Can we expect any consumer to trust financial services again while we continue to manipulate the English language? Will confidence be restored until firms are honest and open about what they are, and what they are not, offering consumers?”

These questions answer themselves, and should be emblazoned on the office wall of every bank, insurer, fund manager and adviser.

Risk is at the nub of Cummings’s argument, on the grounds that consumer confidence will flow from better understanding and explanation of risk.

Advisers must be brave enough to spell out the dangers of investments, even if it means scaring off the customer and losing a potential commission.

Cummings insists this is what the best advisers do, because they know those customers will return all the more reassured that they can trust what they hear. Let’s hope more follow that example.

Go to www.aifa.net/news/ ConsumersDiscussionsof Duties.pdf for the full text of the paper.

Taxing question

WHEN is a tax not a tax? When Price Waterhouse Coopers (PWC) says so.

The accountancy giant is trying to whip up a storm with a survey claiming that half or more of us reckon that prescription, congestion and rubbish-collection charges, the TV licence and national-insurance contributions are taxes when they are not.

While such misapprehensions may muddy attempts at informed policy debates, for most people it’s quite simple: if you can’t avoid paying it, it’s a tax.