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Global
Outlook.
In the wake of crumbling stock markets,
increasing levels of bad debt brought to the surface by the credit
crisis and rising levels of unemployment, policymakers around the
world will be seeking to devise and implement strategies which will
restore stability and hopefully secure the beginning of new growth.
However, as with any strategy, there can be no guarantee of outcome,
nor can we realistically expect an instant fix. The very fact that
we all live in a rapidly changing and an increasingly inter
dependant global economic community, is fully substantiated by the
simple fact that there no country in the world that is doing well at
this moment in time. We are all experiencing for the first time in
many years, a truly global economic recession.
European Outlook.
Europe is now fully experiencing a deep recession,
especially in the United Kingdom where it seems that major job
losses are being announced on a daily basis. Similar to the U.S.,
what started out initially as a crisis in the financial sector,
spread rapidly to all other areas of the economy. The countries of
Iceland, Germany, Spain and Ireland, which have posted impressive
growth figures in recent years, are also now experiencing a severe
economic downturn.
The global economic slump also
threatens to affect Eastern Europe's positive economic growth. For
the last 15 years, all these countries have been extremely active in
their transition to an open market economy, with many noteworthy
successes. These countries are not immune however as many of their
financial and open market systems still lack the sophistication,
transparency, strength and maturity of other more developed
economies. This indeed leaves them vulnerable to the external
influences and pressures of the global crisis.
Emerging Markets.
Emerging markets such as India, China and Latin America are still
continuing to show signs of economic growth, but at substantially
lower rates compared to previous years, giving evidence to the fact
that their economies are not immune to what is happening outside of
their borders. Manufacturing, which has been transferred to these
regions from both Europe and the U.S., has of course been
substantially cut back as consumer and business demand levels around
the world have fallen.
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U.S. Economic Outlook.
The Obama administration are pledging strong affirmative action to
address the financial problems, the most recent estimate of their
recovery package comes to a whopping $780 billion. There is however
already talk that this in itself will not be sufficient to stimulate
the economy, it would appear that a figure closer to 1 trillion is a
more realistic amount. This recovery package though does not include
the capital injection desperately needed by the banking system. The
government has already injected $700 billion into the banking
system. What is clear is that this is not nearly enough to fix the
problems. The American banking system is in a deep trouble, and
whether we like it or not, the only forseeable solution is for the
government to inject further capital into the system, failure to do
so could well mean the collapse of the American banking system. A
realistic estimate of further capital investment comes close to
another 1 trillion dollars; however there is an inherent risk that
this in itself could create further unwanted problems. With rising
levels of government debt, inflation could well be one of those
problems. The global community will be watching the performance of
the new administration with a keen vested interest, as any signs of
economic recovery within the U.S. will invariably impact on other
world economies. Not only to be measured in economic terms, but
there also exists a huge amount of symbolic and psychological
importance attached to the U.S. markets. Nothing is truer than the
correlation that exists between market conditions and levels of
investor confidence.
Opportunities for wise investors do exist.
The emergence of bargain prices for stocks in
world-class companies is perhaps the one positive note in this
gloomy economic picture.
The prices at which you can buy some of these companies for are
extremely attractive to say the least. To the seasoned investor with
liquidity, patience and importantly courage, there certainly are
some exceptional buying opportunities out there. We would advise
though as we would even in strong economic times, examine the
underlying fundamentals of the company you are investing in.
Finally a word of comfort.
Even the world’s most successful investor
experienced a difficult year in 2008. Warren Buffet, the sprightly
78 year old, with a personal worth estimated to be in excess of 62
billion dollars, is the C.E.O and largest shareholder in Berkshire
Hathaway. The investment fund, which by any standard is the most
successful fund in the world, suffered a drop in profits last year.
However, the fund still managed to outperform the major market
indexes in 2008!
We borrow from Mr. Buffet, to share with you, his basic creed of
investing, which has served him and his shareholders extremely well
over many years.
“A simple rule dictates my buying, be fearful when others are
greedy, and be greedy when others are fearful”.
As we have stated, it requires courage!
Good luck to all of our readers with the courage to invest this
year, select your opportunities carefully, be patient and there
exists every possibility of excellent returns.
Sincerely,
United Capital Group Ltd.
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