Worst is Over?

Now that a little more time has passed, its possible that when this year is finally over and we look back, the first and second week of August would have been the scariest times markets had experienced this whole year. Of course, we still have a few more months, so it might be too soon to already make such a conclusion. But my opinion is that we should get through the rest of the year without the kind of crash we saw then.

Europe is the problem here. US is not. Despite all the worrying by analysts and economists there of the possibility of another recession, I believe that even if there was some sort of slowdown, it would not be anywhere near as bad as the drop which was experienced after the Lehman Brother’s crisis. At that time, both the financial and property sector in the US took a huge hit, and consumer confidence, which had been pretty high absolutely plummeted. Today, the US consumer is nervously trying to save more, the property sector is barely starting to recover, and so is the finance sector. They say the higher you climb, the harder you fall. I think the US economy has just barely crawled out of the hole it had fallen into after the Lehman Brother’s crisis, so jumping is hardly even on the cards right now. There may be some longer term structural problems with the US, but lots of countries have those.

Europe is a slightly bigger problem simply because the worst that can happen in Europe is much more scary compared to the worst the can happen in the US. Every time another European country faces problems in the debt market, the fear that there will be a European financial meltdown surfaces. And unlike the US, Europe doesn’t have the leeway to freely print money or devalue its way out of trouble. The silver lining is that since everyone has been reading so much about all the doom and gloom that could accompany a Europe financial meltdown, then a lot of this would have been priced into markets already. I read the other day that the market capitalization of just Apple alone was more than that of all the top European banks all added together.

We have a new research article up on how we have upgraded 12 markets and downgraded Europe to 3 stars. The only other time we upgraded several markets to 5 stars was in the aftermath of the Lehman Brother’s crisis. I have already switched two out of three of my bond funds into equity funds. I think I may not have the opportunity to switch the last bond fund over to equity because it may be that the worst is over. We won’t know for sure until the whole year is up, and it doesn’t quite feel like it now yet because everyone is still extremely cautious. However, my personal opinion is that the worst is over.

On a separate more personal note, I have finally gotten the keys to my new home. My wife and I went there over the weekend and we absolutely loved our new place. I think having to wait 3 years for it to finish building probably made us love it more. (Waiting for something always makes it sweeter when you finally get it). But regardless, I will have to sell off my short term duration bond funds soon as we are going to start renovating our new home. I hope as much as possible I won’t have to touch the equity funds I have.