~Murky Waters~

It’s been over 2 years since the recession hit the world.  Just like the time it takes to fight a cold depends on the strength of your immune system, similarly the time it takes for a country to fight a recession depends on the strength of the underlying fundamentals of its economy.  Given the global inter-connectivity of the developed and developing nations, the relatively stronger ones will need to hold up their weaker friends, in an effort to restore the balance they were once used to.


What most don’t realize is that when you have a period that is driven by ‘paper’ growth (as happened over the last 10 years) and not ‘real growth’ (as happened during the industrial revolution), it will eventually come back to haunt you as the means to the so-called growth was inflation – increase in assets driven by relaxed credit.  And now, to get out of the whole mess….guess what….we’re doing more of the same!  I remember thinking to myself back in 2007 as to how what it meant for the financial markets – more importantly the valuation of the US market – and I came to the conclusion that the market should be worth what it was before the credit expansion and sure enough it got there.

So what now? Where do we go from here?  Austerity measures would be a good start.  Default on unmanageable debt loads of certain countries.  Reduced standard of living for those who may not have deserved it to begin with.  Shift of balance of power from the West towards the East.  Rise in the value of commodities and precious metals.  World War III?  Sorry to burst your bubble…but we are in uncertain times…and for most of us – we have not lived through a period of time that was really that bad and hence tend to be victims of recent memory.


To add to the fragile economic woes/worries of the western world, classified military documents were revealed recently, which exposed the world to America’s foreign policy.  For those outside America, this came as no surprise.

In the eastern world, foreign policy (unless you’re Iran or North Korea…..oh and now UAE – c’mon!) takes a back seat to another popular type of leak – corruption!  Further to my previous blog post, the emerging economies aren’t without their share of problems.  Just when you think they are clear of recessionary pressures and the underlying fundamentals are driving their market indices to all-time highs, the leaks begin to appear.


While these leaks are being addressed tactically, longer term strategies are being developed to aid the euro zone from imploding.  The EU, England and France have collectively thrown Ireland a float to help it from drowning.  It remains to be seen if and when the euro will regain it’s credibility.


The story isn’t quite bleak though.  There are always opportunities to be had in any market.  It’s a matter of understanding the macro picture and being able to make micro bets…..all with a pinch of luck, aka, market timing.  In these murky waters, all kinds of creatures exist, each with their own plans for survival and power.  Only time will tell how it all plays out.

Goodbye 2010!  Happy 2011!


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