A recent commentary by Litman Gregory titled the “No-Load Fund Analyst” contrasts the dangers and the opportunities present in today’s global marketplace. In an excerpt, the report notes that the situation in Europe is coming to a point where officials will be forced to address the longer term structural issues.
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Germany’s willingness to soften its position against economic stimulus and easing terms for distressed countries to get aid are evidence of this shift. The process for getting to that point has devalued European and emerging equities markets to the point where valuations may be compelling.
The caveat is the conflicting approach to solving Europe’s issues. The resulting stalemate has contributed to a decline in global economic growth.
An overview of global markets notes that the US is struggling with both short and long term debt issues, Japan has even greater debt than the US but so far, there’s been little attention on those markets. The private sector continues to pay down debt but debt levels are still high. Debt in the public sector is still increasing. Overall, the deleveraging process is projected to take about five years.
But the US economy is improving, although slowly. As confidence increases, foreign investors who have accumulated a large amount of cash will begin putting that money back to work. Both the European and emerging markets areas indicate they are already discounting the slow economic growth.
With growth occurring at such a slow pace, it will be easier for the recovery to be derailed and for uncertainty to be the cause of continued volatility. You can find more information about the commentary here