|Eurozone troubles plague markets
Saturday May 19, 2012
We had a pretty nice first quarter before April basically wiped
out much of the gain for the year to date. Recently, it’s been
back to volatility and uncertainty. Put the blame on Europe.
The eurozone is still suffering from the debt crisis plaguing
the PIIGS (Portugal, Ireland, Italy, Greece, Spain), and from
the imposition of unpopular austerity measures in those countries.
Greece, especially, is on shaky ground, as it has not yet been
able to form a government, while the clock continues to tick
on its debt time bomb, threatening the entire eurozone.
Along with Greece and Spain, France is now starting to feel
the pinch as well. Germany, the strongest of the European economies,
is keeping the eurozone afloat, but all is not well in the European
Union as a whole. The region has a poor demographic outlook,
very high unemployment (20% plus) in southern countries and
very low unemployment in northern nations (3% to 5%). It’s a
significant north-south divide.
The U.S. continues to struggle with a huge national debt, high
unemployment, and only sluggish economic growth. Corporate America
is in very good shape, but the debt problem and the poor housing
market will plague the economy for years to come.
A positive offset can be found in the growth of the emerging
economies, especially China with its massive size and overall
importance to the world economy (currently the world’s second-largest
economy after the U.S.)
The shift of economic power to the East from the West is well
underway and continuing. Political power will also shift over
time. The West not long ago produced about 67% of overall world
gross domestic product. Today it’s close to 50%, and in 20 years
will be about 33%. This means the emerging market economies
will produce about 67% effectively reversing roles. That is
quite incredible if you think about it.
For most of us, the West has been in the driver’s seat for
all our lives. That will be markedly different for our children.
As investors, we must ensure we don’t invest like we did 10
to 20 years ago. Back then, Silicon Valley was all the rage,
and the high-tech sector drove the markets. Those days are gone,
and it’s long past time to shift gears, if you haven’t already
done so. (Companies like Facebook Inc., which just raised US$16
billion in the biggest IPO ever for a tech company, are the
exception now, not the rule.) The major fund companies have
seen the light, and all kinds of new equity and fixed-income
emerging market mutual funds have been coming to market over
the past year or so. Check with your advisor for ways to take
advantage of this new growth opportunity.
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