Thursday, 29 September 2011

Now is the (Indian) summer of our discontent…

With the temperature nudging towards a highly unseasonal 30 degrees in London, it is not just the long-suffering London commuter who is sweltering in the heat.  Global markets are continuing to find the going difficult, spit roasted between a continuing stream of poor economic data from the United States and the seemingly endless vacillation of European politicians in their handling of the Greek debt crisis.  Politicians, too, are finding the heat rising.  Angela Merkel is having to spend a great deal of political capital to ensure that the Greek rescue package can make its way through the German political system, while  Nicolas Sarkozy in France has more than one eye on the forthcoming presidential election from a lowly position in the polls.  Southern European leaders are being forced to implement increasingly unpopular austerity measures while Northern European electorates, fed on a diet of vitriol about their feckless co-European brethren, are protesting about pouring more funds into a black hole.

The realities of the situation are often difficult for individuals to grasp.  One calculation estimated that, if Greece were to leave the Euro, its economy would shrink by 50%.  If Germany were to abandon the Euro to its fate and reinstitute the Deutschmark, some estimate that it would be at the expense of 20% of its Gross Domestic Product.  These numbers simply do not bear thinking about and, perhaps, the sooner this is understood, the better.  For the European leaders, they must do whatever it takes to rescue the Euro project at, almost, any cost.  Notwithstanding the shocks reverberating through the financial system at present, we would do well to remember that there are a core of global companies based in the Eurozone region whose business interests are just that – global. As I have said before, these are real businesses, producing real profits and paying real dividends.  Predicting share price movements on a daily basis is rarely an easy thing to do and this is especially true at present.  Nevertheless, one would hope that patience may reward the prudent investor over time.

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