The bursting of the asset bubble amidst a tsunami of financial problems and the economic recession has already erased more than four years of wealth created by world’s households and corporations. However, the precipitous drop in wealth is unlikely to end anytime soon. Now there is something else to worry about: deflation. Emerging deflation in general consumer prices will likely exacerbate the current economic and financial problems and will lead to the extended, albeit somewhat less severe losses in asset values and therefore in general wealth.

Institutions such as the Central Bank, the IMF, and our own banks such as AIB have all painted gloomy growth, or rather contraction, forecasts for Ireland. A central point is that Ireland’s recovery is heavily dependent on global economic recovery, and so somewhat out of our control.

Deflationary pressures have already slashed values of various asset classes, especially in the property market. However, these pressures will be sustained as the world’s economies enter into a cycle of falling prices of consumer goods and services. Given that deflation negatively affects household income, corporate profits, asset values, and the overall economic growth, it will be necessary to show prudence when making investment decisions in the current market. In fact, for deflation, there is only one right investment choice: preserving capital.

In deflationary times, the overall investment strategy should be focused on the preservation of wealth rather than on the creation of wealth. Moreover, the goal is to concentrate holdings in safe assets rather that to diversify them across sectors and markets. This conservative approach means steering away from equities, commodities, and high-yield fixed income securities, even from traditionally conservative investments such as property and managed funds, and focusing on safe liquid investments, such as cash and bonds, which do not necessarily produce high returns.

In fact, deflationary times give true meaning to the cliche cash is king. This is so because, by definition, deflation means that the value of your money increases as the price of goods and services declines. There are also other liquid (cash-like) investment instruments, such as certificates of deposit and money market funds, which would preserve your wealth from losses propped up by deflation.

Bonds are also an option. However, investing in bonds when deflation is coupled by financial distresses and the possibility of an extended economic downturn warrants caution in respect to bond issuer creditworthiness. The likelihood of default on certain types of government securities (particularly municipal bonds) and corporate bonds is heightened in the current situation in which corporate bankruptcies, especially in some sectors such as auto industry, are rising. Therefore, one should be very selective when opting for bonds, particularly corporate bonds, making sure that securities with the lowest probability of default are selected. Treasury bonds are the safest investment choice.

Certain undervalued equities may also offer some long-term value. For those who maintain investment positions in equities with a long-term perspective, sectors that could offer some relative security from the generally declining stock market include infrastructure construction-related sectors, consumer staples, healthcare, and utilities such as electric power companies.

However, with this investment strategy one may view deflation as an economic process that reduces opportunities to maximize wealth creation. Quite the contrary! Conservative investment choices in deflationary times preserve wealth from losses and secure capital for the time when high-return opportunities re-emerge. In fact, deflations are the precursors of investment opportunities that will follow it. These opportunities, when identified properly, may offer substantial long-term returns that will assure optimal long-term investment performance. Still, while the coming deflation may not last long, it will take a while before the economy charges ahead again. It will be necessary to clean some of the excesses accumulated during the largest asset bubble in the economic history of the modern world before good investment opportunities sprout again.

This cleansing process is where the National Asset Management Agency (NAMA) needs to make the correct decisions, on behalf of the Irish taxpayer, in order to maximise long-term sustainable growth. Here’s hoping…

By: Emil Okanovic

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Marketing Strategies

WOODSIDE, Calif., Dec. 15 /PRNewswire/ — Fisher Investments announces the release of its latest Stock Market Outlook, a quarterly research report published by the Fisher Investments research team under the direction of CEO Ken Fisher and the firm’s portfolio management team. The Stock Market Outlook research report includes Fisher Investments’ latest market outlook, capital markets research and portfolio insights. The Stock Market Outlook provides individual investors an opportunity to gain valuable research and information on the current state of the global stock market.

To access the Stock Market Outlook, simply go to www.google.com and search for “Fisher Investments Stock Market Outlook” and then click on the link for the “Fisher Investments Research Report.”

The Fisher Investments Stock Market Outlook provides insight into the firm’s market and portfolio research with views on:

> Why the new bull market has additional upside potential ahead

> Which sectors and countries may rebound the most

> Why stocks are still undervalued by historical standards

> Signs that global economic recovery is already underway

> And much more investors can put to use in their own portfolios

Fisher Investments conducts internal research to support the portfolio management process for large institutional clients and thousands of private clients. This involves developing capital markets technologies to interpret market events in unique ways and studying the impact of economic, political and sentiment drivers on global stock markets. Some of these research findings can be found in Fisher Investments’ latest Stock Market Outlook.

To get your copy of the latest Stock Market Outlook with insights into Fisher Investments’ market and portfolio research, go to www.google.com and search for “Fisher Investments Stock Market Outlook” and then click on the link for the “Fisher Investments Research Report.” 

About Fisher Investments

Fisher Asset Management, LLC, doing business as Fisher Investments, is a portfolio management company founded in 1979 serving the needs of institutional and individual investors globally. Fisher Investments’ clients include large corporate and public pension plans, foundations and endowments, as well as thousands of high net worth individuals. Fisher Investments is registered as an investment adviser with the Securities and Exchange Commission (SEC). Its portfolio management team is headquartered in Woodside, CA. Ken Fisher, founder, CEO and Chief Investment Officer, is the author of six books including three bestsellers, many academic studies, and has written Forbes magazine’s “Portfolio Strategy” column since 1984. Visit Fisher Investments corporate website at http://www.fisherinvestments.com

About Fisher Investments Research

Fisher Investments has a 50+ person research department, including more than 25 research analysts. The research department’s structure optimally supports the Investment Policy Committee (IPC) as they make strategic portfolio management and implementation decisions. Research teams focus on generating economic, capital markets, and securities research and communicating their findings to the IPC on a daily basis and as changes arise. Fisher Investments Stock Market Outlook can be found at: http://www.fisherinvestments.com/more-about-fisher-investments/fisher-investments-stock-market-outlook

Fisher Investments Stock Market Outlook is copyrighted research material. Past forecasts and performance are not a guide to future forecasts or performance. The value of investments and the income from them will fluctuate with world stock markets and international currency exchange rates and involves the risk of loss.

SOURCE Fisher Investments

Disclaimer: This article reflects personal viewpoints of the author and is not a description of advisory services by its author’s employer or performance of its clients. Such viewpoints may change at any time without notice. Nothing herein constitutes investment advice or a recommendation to buy or sell any security or that any security, portfolio, transaction or strategy is suitable for any specific person. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

By: Fisher Investments Editorial Staff

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