Risk assets have fallen considerably from their April highs six or seven weeks ago. Equities most markedly in the West are down between 12 and 20 per cent, high yield and high grade corporate debt much weaker, high yielding currencies selling off as the carry trade unwinds and commodities, with the exception of gold, are also very weak as investors flee to the safe haven assets of treasuries, bunds and the US dollar.

With those falls in risk assets, in equities, commodities and so on, investors are now beginning to ask themselves is this the beginning of something more sinister, is this the beginning of a new bear market, or this is simply just a wave of risk aversion?

In our view there are four key reasons why this is just a wave of risk aversion and nothing more sinister.

Firstly, we had evidence that the top in mid to late April there was a significant exuberance priced into risk assets and into equities. Our sell off indicator, designed to pick up over-exuberance from investors, flagged up a signal on the 27th April just as this sell off was beginning. If markets started exuberant, it's only natural that they unwind with periods and waves of risk aversion immediately following that.

Secondly, on top of that, we believe we're still in phase two of a stylised cyclical bull market. As we laid out in a programme at the beginning of this year, January of this year, phase two typically follows phase one. Phase two is the consolidation of the gains in phase one in the cyclical bull market and phase two is characterised by volatility by 10 to 15 per cent sell offs, 10 to 15 per cent rallies over the course of six to nine months as markets consolidate and trend slightly lower. That is the phase we believe we're in. As such, that sell off is typical of a phase two.

And thirdly, our view is the macro is fine. Yes there are challenges created by fiscal austerity, the eurozone debt crisis and so on, but momentum in the US economy continues to build. A lot of the data is V-shaped. The recovery is becoming increasingly self-sustaining. Whilst in China growth continues albeit there is some slowing and in Europe, actually in the core, the data is very good. German and French employment expectations are very high. German new orders are good. European new industrial orders are good and so on. The data suggests the macro continues.

And finally and perhaps most importantly, the models have a very clear message. A very clear buy message from the medium-term models. Whether we look at our scoring systems, our risk appetite models, the put to call model which shows considerable fear and put buying has happened in markets. In other words, they're underpinned on the downside. People have bought their insurance. Or whether you look at volatility, all the sorts of models, the message is the same from them all. Markets should rally from here for the next month or two.

That was the Longview. You can download this programme from the iTunes store, from Cantos, or indeed from our website www.longvieweconomics.com. Do get in touch through the website if you have any questions. We hope you enjoyed watching. Look forward to seeing you next month. Goodbye.