Market Overview, January 2010

MARKET OVERVIEW – January 2010

There has been much talk about the prospect of a double dip in global economies and though we’re not sure that this is likely to happen, we do believe it is a real possibility. Our thinking is based on a number of different pieces of news that have come to light of late.

Firstly, President Obama is looking to reduce the size of the banks that (were too big to fail) by preventing them from dealing in propriety equities, which basically means stopping them from investing their own money in equities. Also, he wishes to prevent them from running hedge funds and a number of other measures. The initial response is that they will vigorously defend their right to continue with business as usual which seems to have created the credit crunch in the first place.

The DOW Jones index has fallen in excess of 400 points recently with financial shares leading the way. Although this could potentially be a simple knee jerk reaction, it may be one of the triggers that precede the beginning of a severe downward correction.

Furthermore, China is struggling with what appears to be an overheated economy and some economists feel that a bubble has developed in the property market that is also causing some concern among the economic community.

Whilst we had good results in 2009 as a result of the equity markets recovering a lot of the ground that was lost during the credit crunch, we believe that growth over the foreseeable future will be slow at best.

With these factors taken into account we believe that it would be prudent to move accumulated capital into even more defensive positions in the short term. Therefore, if there is a double dip, we can protect the funds that have benefited from the recovery over the last year. Should there not be a double dip, then we won’t make as much growth in the short term as would otherwise be the case, but I think that would be a small price to pay for security and peace of mind.

Your choices: If you agree with our thoughts and would like to protect the last year’s gains, feel free to contact me so that we can arrange a meeting to discuss your individual program to enable you to make an informed decision. In any event, it’s always a good idea to carry out regular reviews even if it has only recently been done.