| At the beginning of the year, my conviction was that higher global growth and interest rates would eventually damage your financial wealth. I've not changed that view. But remember, we deal in a world of dreams. What the market dreams, not what happens, is what sets prices (at least until reality wakes the market up). And currently the consensus is dreaming of low growth. What would be the consequences of a low-growth scenario? First, it spells big doubts about European monetary union (Emu), as unemployment and government deficits soar in Europe. That means a strong Deutschmark and good Bund performance. The bond and equity markets of countries with poor public finances, such as Italy, Spain and Sweden, will suffer, while European core equity markets will be affected by Deutschmark strength against the dollar and peripheral countries' currencies. Second, slower us growth, but continued Japanese recovery after a summer plateau, would suggest a further slight weakening of the yen against the dollar, as us-Japanese trade moved towards equilibrium, and capital outflows continued from Japan. But the drama of last year's big yen/dollar devaluation would still be over; there's little room for further improvement in the us trade account. |