Despite all the data, charts and back testing of information, investors will always turn to mush during times of panic. When panic sets in, our logical side takes a backseat. If we are strong willed, are we being obstinate or clever. If we rush in and out, are we smarter or dim witted?
What do we know:
a) that the developed nations are in a big pile of you know what ... will they be able to dig themselves out of it? ... probably ... the question is just a matter of how long will it take
b) can we realistically assess the carry on effects onto the global economy?... mind you, there will be ... there already has been since the subprime crisis ... how much more of an impact? ... federal and state budgets will come under the microscope, a lot of cutbacks at their domestic fronts (US, Greece, Spain, Italy) .. those companies and industries dependent more on that areas will be affected (medical care, pharma, defence, some banks) ... yes, more will be unemployed from the civil services
c) one thing for sure, whatever measures they adopt, we will be in for a much longer period of near zero interest rate in the developed markets, that doesn't take a lot for stocks to outperform ... naturally, in times of panic, investors will shun stocks and commodities and opt for bonds .. once calm has returned, a move back to stocks will be swift, in fact even a rush for them
d) besides interest rates, there is a lot of liquidity in the financial system, and will stay that way for at least another 12-24 months, in fact we may see QE3 (not the ship) sooner than we think ... that liquidity cannot stay in bonds too long as the yields there are very pathetic ... already we are seeing enormous bubbles in certain currencies, namely AUD, Swiss Franc, yen as alternatives to the dollar, these so called newer safe havens and commodity currencies will actually bring more economic malaise to their countries over the mid term
e) while all the new measures are being hammered out, for them to work, their currencies must depreciate gradually and sustainably over the exorcism period ... which is to say that emerging markets currencies must rise correspondingly ... which is to say emerging markets equity will be the flavour of the year for the next 6-12 months
f) why there wouldn't be a meltdown ... for all the negatives cited above, most companies in developed markets (save for those mentioned in affected industries) are holding a lot of cash and many do their business globally already ... if you ask me, I think the subprime mess have had and will have had a bigger impact financially than the current sovereign debt crisis ... and most companies have been able to ride that out well over the past 24 months because of emerging markets' vibrancy, and thankfully emerging markets have been doing a lot more business with each other and not the developed nations
g) charts and data, risk profiling studies have been posted for the past few days in this blog, if all that is not enough to persuade you to move back into stocks, then you should just forget about reading for more information, because you already have another opinion or your minds will never get to a conclusion anyway
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