Message to our valued clients

Just a quick update on global events and how they may affect strategies and performances going forward

There has been a small “correction” in global markets as a result of the uncertainty over the Japanese earthquake and tsunami and the Libyan and other Middle Eastern unrest.

How do they affect the markets ? Well it is a matter of perception, investors take on information from media articles, the talking heads in the media, their advisors and government statements and wonder what to make of it all. Where uncertainty exists as it does here people get concerned and act conservatively, quite understandably and this can and did lead to small amount of selling out of the equity markets until “stabilisation” returns – since the G7 intervention some of this has returned (see article on website front page)

Has Stabilisation returned ? Not yet but the worst case scenario’s have been avoided which helps settle the market down, eventually if uncertainty still exists that ends up being factored into pricing so time alone, if no other unsettling events occur, assists in stabiliisng the market

It would seem that although some of the reactor damage in Japan remains serious it is not as dangerous as first being mooted, again (at time of writing anyway) a worst case scenario has been averted. Libya and otherMiddle Eastern unsettlements it is harder to gauge as the engagement rules and objectives seem at best not well explained, however they are regionalised at this moment and our opinion is this fallout will be limited. Oil of course has spiked but as Libya only has 2% of the world’s reserves this too should be contained

Going forward ? Well a correction was due even if these world events had not occurred, although still well of it’s highs of 2 or more years ago markets have generally made steady gains in the last year or more. Although a lot of talk has been made regarding the de-coupling of the USA markets from the emerging markets such as Sia iot is still a fact that other markets follow the USA lead.

There are still big problems in the USA, there has been no progress on unemployment numbers in the last 2 years and in particular private sector employment numbers have dropped whilst any increases have come in the public sector, that means the Govt is getting less in tax from the private sector workers and companies as there are less of them but paying more from the taxpayer to public sector workers.

Add this gto the enormous amount of debt they have now incurred and it does not paint a rosy picture. In addition housing figures were out today which show new housimg figures at record lows for February and at their lowest since December 2003

This is all likely to stymie major growth in the short term but stock prices are still reasonably attractive going forward but growth may be modest to flat in the next 12 months

In summary I thnk we can expect further volatility until the USA and Europe (see other articles on wesbite front page) sort out their debt problems but if and when that happens then clients can be well positioned with todays purchase prices to take advantage.

One thing for sure now is certainly the time to have diverse holdings to best ride the volatility

Nothing is certain however and the above is our opinion as it stands today

Ken Smith

Ambleside Consultants Ltd March 25 2011

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