Friday, March 29, 2024
 
Columnist
Martin Hennecke
Paul Ramscar
Formerly Director - Wealth Management at Financial Partners
"The growth engine of the whole world is back. It is now reinventing itself for the next chapter of its history books."

Tap in as sleeping giant awakens
12/07/2010


The growth engine of the whole world is back. It is now reinventing itself for the next chapter of its history books.

This is nothing new as the United States has been doing this for over 100 years.

When faced with challenges no other nation on earth can beat the US of A in terms of productivity, innovation, science, technology and adaptation.

It is very clear now that the US economy has emerged from the global financial crisis. But we are probably in for a period of long but slow growth.

The crisis has humbled Americans, making them re-focus on more prudent fiscal and political measures. Gone are the days of easy credit, "no-doc'' loans and zero money down mortgages.

The new America is leaner and smarter then ever before. This is apparent in how financial institutions have implemented stricter lending requirements and ratios, to hopefully prevent a repeat of the past two years. Back in July 2009, we told CNBC that the recession was drawing to an end and that we expected the global economy to improve for the next two quarters.

Now, it is evident the recession did actually end during the second and third quarters of 2009.

In that period, we received further confirmation from a time tested barometer of the US economy, the S&P 500 index.

Our technical analysis showed the index had crossed a significant resistance level, that in the past signaled the start of a bullish trend.

During the second half of 2009 we were building strategic US equity positions in our satellite portfolios for clients and we have continued to do so in 2010 and more importantly buying on the dips. Just before the first-quarter earnings season this year we advised clients to pick up stocks such as Oracle, Cisco, Halliburton and some other major blue chips.

While any investor can quite easily buy an exchange-traded fund which tracks the S&P 500 index, what they cannot normally do is utilize capital protection strategies which protect the investor during periods of volatility or significant market pullbacks.

But through the proper use of derivative products it is possible to offer significant protection which limits or totally eliminates downside movements.

Another useful and popular investment strategy is to use the derivatives in order to reduce the investor's cost basis thus increasing the return on investment.

Interestingly, during the crisis and more recently due to events in Greece and the euro zone, investors have once again been flocking to the safety of the US dollar and US Treasuries.

In August 2009, we told CNBC's Cashflow program that the euro was a Frankenstein currency and that the European Union would have huge problems in the future.

Even Beijing has begun to accumulate further holdings of US government Treasuries and has been unloading some of its euro holdings.

It is quite clear that the world believes much more in the faith of the US financial system and at no time soon will the US dollar lose its status as the world's reserve currency.

It would therefore be wise to accumulate US dollar denominated assets to benefit from the awakening of the United States as a key dominant economic superpower.

Currently we are accumulating positions for clients in our satellite portfolios and believe that investors should have significant holdings in mainland, Indian, Brazilian and US assets.


Paul's other stories on The Standard:
Held in a grizzly grip - 25/05/2009
China ingredients a recipe for success - 27/04/2009
US insurance behemoths may fall like dominoes - 06/04/2009
Right advice worth its weight in gold - 16/03/2009
Obama's mortgage plan gives little hope - 09/03/2009
Power of one - 16/02/2009
Let corporate bonds reign supreme -12/01/2009
 


Other articles:
Rollercoaster post-recession blues - 17/10/2011
India stocks still good for picking - 06/09/2010
Desperately seeking alpha: how US stocks measure up - 16/08/2010
>> Tap in as sleeping giant awakens - 12/07/2010
Search for alpha among beta - 05/07/2010
Crisis fails to temper desire for opulence - 14/06/2010
BRICs build sturdy foundation on their own - 31/05/2010
Get real when the market throws a wobbly - 17/05/2010
It¡¦s complex when bulls and bears share the same cage - 03/05/2010
Five questions to ask your adviser - 19/04/2010
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