Sunday, December 18, 2011

2011: a Rough and Tumble Year, with Plenty of Market Volatility

Events challenging many investors this year included: 
  • the catastrophic Japan earthquake
  • political unrest in North Africa and the Middle East
  • the persistent European sovereign debt crisis,
  • concerns about China's growth, along with inflation concerns,
  • the strength of the U.S. recovery which confronts fiscal deficit issues and persistent unemployment and
  • severe floods in Thailand
Actions (sometimes just meetings) by political leaders, policy makers and central bankers, along with the release of economic data, often triggered sharp positive and negative market swings. The most recent news item, from this past week, was that the Fitch credit agency lowered its view on the governments of Belgium, Spain, Slovenia, Italy, Ireland and Cyprus and reported that France is at risk of a downgrade.

Many of these events are reshaping our expectations of global growth for years to come. While the breath of the global economic crisis is well understood, the depth of its damage (which includes the scale of additional deleveraging needed by banks and governments, along with the road map for recovery) are less clear. As market uncertainty dissipates, the ability to assess probable outcomes (a critical component of successful investment strategies) should improve.

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