- Government deficits: Besides Greece there is a real threat of default amongst Ireland, UK, Portugal, Italy, Spain (should be called puiigs). In Ireland where I’m from, we spend 50bn a year and only take in 30bn. The pain of the correction required from reductions in social welfare and public sector pay, may be too difficult or too slow, so that as we layer on 20bn a year, the interest bill will bring us to our knees and we will end up having to have debt forgiveness. Also ECB are doing QE through their bond swaps with banks and this will cause huge downward pressure on the euro. Strategy: exit euro cash, exit euro equities, hold euro corporate bonds for the moment. Ultimately the future is difficult to see in Europe and unless you have a lifestyle in euro, it is a market to avoid.
- Gold: In my view this is a bubble, the effect on wealth protection because of depreciating currencies is outweighed by the speculative nature of the money coming into gold. Strategy: hold a small amount of gold, but, as with property in 2007, there is a cliff ahead.
- USD: I’m 50/50 on this. While the US deficit is out of control, it’s hard to see a situation where the USD is not the main reserve currency in the near term. People talk about unemployment levels and the switch of value to the east. In my view this is a 10 year trend and in the medium term the US will rebound, in particular equities. Strategy: Right now I have switched mostly from euro to USD/NOK and CAD (AUD is probably a bubble). When the markets bottom out in August or September, I will switch back from cash into equities. btw I switched to cash in 2008 and only got back corporate bonds/equities in June 09, but have switched back to cash again.
- Cashflow: if you have any opportunity to invest in a private business with decent cashflow + margins, I believe it will be a major hedge against inflation in any market
- eamonnfallon
