Overview

From EU Banker & others

Cycle: 2 years to recovery

Negative growth expected throughout 2009 in most markets. Spending slowing. Governmental remedies likely to take at least 6 months before any positive effect feeds through. Near term recovery unlikely. Very fast rise in unemployment - with knock on effect for consumption and government spending. Unemployment unlikely to improve this year or next. Corporate insolvency will rise this year and next. At best economic growth is likely to remain static this year and early next. At some stage inventory will need re-stocking and may offer a floor to economy. Some assets will recover in anticipation but not likely this year.

Rates / FX / Inflation: Ex USD this year, return late 2010.

Rates will stay low through 2009. UK Base rate 1.5%, U.S. @ 0.5%, Japan at 0.1%. Only ECB lagging with interest rate cuts on the Euro, ECB President Jean-Claude Trichet suggesting that no cuts will come this month. Rates were cut by 0.5% to 2% at the Jan 15th meeting. Most expect rates to go to 1.5% in March. FX rates will reflect the fundamentals of interest rate parity. Euro has space to narrow against the dollar. USD expected to remain strong until Euro differentials steady - probably towards back end of 2009. Eventually authorities will raise rates and FX rates will be determined by anticipation of increases. This may lead to Dollar weakness late 2010. Inflation will fall this year and next but may return with a vengeance.

Bonds: Pass on long dated and Gilts. Specific Shorts & Mids may offer value

Long term outlook weak. Yields low (values high). Rising rates past 2009 will hit mid and long term bonds. Rising inflation will also destroy real value. But some bonds in quality corporations have been oversold to distressed levels by investors may offer opportunity. There is the risk that distressed debt may become more distressed...

Equities: Buy on dips slowly at first through summer. Expect recovery over next two years.

Equities respond quickly, generally leading the economic cycle. Probably seen the worst and will enjoy relief rallies - but near time upside will be limited by bad news flow. P/E ratios look cheap on historic earnings but reporting out till 2010 will show large falls, bringing those ratios into line. There is cash waiting for investment. When fear lifts money will hit the street, and it will be quick.

Private Equity: Existing investors wait and suffer, opportunities for new money.

A Reliance on debt will end many PE Houses. The next year or two will be painful for existing investors who may have to meet cash calls. Valuation reporting at year end will dent confidence further. PE Houses will stop issuing new funds while resolving problems with existing investments. Existing PE fund investment probably not be a great place to be until late 2010. But if you can stand highly volatile deeply illiquid long term investment then 2009 may offer some bargains in the PE field.

Commodities: Long Oil / Short or Neutral Gold

Long only investment unlikely to thrive in recession although values have probably overshot, particularly oil which expect to see $60+ by year end and perhaps futher later. Gold will move in inverse direction to global economy. Gold values last year determined by huge risk aversion as CC unwound and institutions were still determining their exposure. Long term global economic recovery likely to have adverse impact on gold price.