What about 2011? - January 2011
From Riviera Times
What about 2011?
An expert looks ahead cautiously at the prospects for 2011 on the stock marketsYves Derrien, Director of Riviera Financial Planning, answers three of the most frequently asked questions from clients arising from his articles in the Riviera Times on investments for the future. As another year begins, should we be investing in the stock markets just yet?
In June, you spoke about the credit crisis in Greece. What is the present situation?
As we feared in our article in June, this sovereign debt crisis is not confined to Greece anymore, but is currently spreading. The European Central Bank (ECB) is forced to buy back the Greek and Irish bonds to maintain low rates, which is more or less the same as printing virtual money. Although the amount at stake is not huge at the moment (€67 billion), if a country like Spain is affected, the ECB will need to increase it to several hundreds of billion euros. For us the current inflationary strategy of the Federal Reserve Bank in the United States is far more worrying (the central bank will print out 600 billion dollars until mid-2011) and the extension of tax cuts can affect the country's credit-worthiness, which will eventually lead to higher long-term interest rates.
For what reasons should stocks continue to grow in 2011?
We think that this crisis is not over yet. Other European countries should soon be hit. Even in the United States, a debt crisis is increasingly feared, although there are also positive factors that could lead the economy to grow. The emerging countries should remain the main growth engine of the global economy. Firms in the United States and in Europe are in good shape and have regularly developed their turnovers and profits since last year. In a context where money is abundant, because of the massive injections of liquidities by the central banks and of the durably low short-term interest rates, companies should continue to grow. All this supports the feeling that stock markets will rise in 2011. In other words, stock markets are like hot air balloons, which can be loaded with ballast.
What are your investment strategies for 2011?
We think that if these credit and currency crises extend their scopes, it will have strong consequences on financial markets. The question is: will our air balloon still fly higher if one adds ballast? When will it happen? Consequently, we remain very careful and we prefer to wait before investing again on stock markets.
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