"This global boom is not over. Recent work on demographics, especially in the US, is very encouraging."
The first thing clients should recognise is this year has seen an unprecedented degree of risk aversion with fundamentals totally ignored. What we have seen has been sheer panic, with no logical or fundamental base to it, and this will be obvious as time goes by.
The best way of comparing it is to a massive earthquake. I'm sure you've seen the programmes from time to time where scientists and experts end up telling us - over many years now - we can expect a massive earthquake in the US - Yellowstone Park - and at various other spots in the World. One day of course they will be right.
In the financial world experts have been warning us for the last 10 years about debt - irresponsible lending - bubbles building - but they've also been warning us - only 100 days ago - oil was going to $200 a barrel and possibly $300. Inflation apparently was such a monster Central Banks were forced to keep interest rates high. At the same time gold was supposed to go to $2,000 an ounce. In the meantime nobody realised Central Bankers and Regulators were telling lies. Suddenly the bubble of confidence burst (bursting other bubbles). Strangely enough it's a function of global success that bubbles were building in the first place. If you don't have wealth you can't create excess.
I've been asked more than 100 times why we didn't see it coming and why we didn't do anything about this in advance. The problem is when you get fundamentals completed dislocated from market panic, it's so volatile and could be so short lived, it could stop just as fast as it started.
There are times when nothing works. When I say nothing I mean any alternative. Perspective is a handy word at a time like this. The US GDP shrank by 0.3% and triggered amongst pessimists some of the most staggering, ominous, and ludicrous predictions.
Let's look at some of the numbers. The actual amount of sub prime debt underwritten over the last 10 years is $1.2 trillion. The absolute maximum job losses in the US will be 800,000 and that's a high estimate. The drop in output in Dollar terms on a 0.3% fall in US GDP, starting at a $14.2 trillion GDP peak of annual income, is only $43bn.
The gross cost savings to the US economy if the price of oil over the next year is $80 a barrel and not $145 as was expected, is almost $522bn - in only one year. The saving to US consumers and businesses, never mind the rest of the World, is colossal.
A useful way of establishing whether or not equities (shares) are expensive or cheap is to measure a share's price/earnings ratio. Last week the average US stock had a P/E as low as it was in 1991 - a great time to buy equities. Also a huge number of World equities have share prices well below asset values and in some cases, cash in their bank account.
This global boom is not over. Recent work on demographics, especially in the US, is very encouraging. A fresh baby boom kicked off in the US in the early 1980's and this generation, larger than the post war baby boom, and five times more powerful in spending power, will, together with the emerging Far East give a momentum to World trade never before seen in history. That's why we think it's right to continue to be positive.
This letter is the personal view of Alan Steel. Please check the appropriateness to your individual position with your adviser before taking or refraining from any action.