Financial Meltdown; Part Two?

How fast things can change; in either direction. I studiously try to avoid thinking in short term time frames. It usually leads to sub-optimal, emotionally driven decision making, rather than longer term strategicially driven decision making. Sometimes, however, near horizon events are compelling enough to warrant shorter term tactical changes of direction.

I do not see the global financial system being on the verge of a financial apocalypse, at the present time. Last year, at this time, presented a distinct possibilty that we were. Nonetheless, there are a number of very troubling signs on the near term horizon. One of these is an increasing probabilty of a sovereign debt crisis acting as a catalyst for global financial meltdown part two.

A number of countries and regions, such as China, Brazil and India, appear to be economically strong and gaining traction. In and of itself, this might lead one to believe in the underlying attractiveness of some portion of capital allocation to these regions. I concur in the the underlying premise of longer term opprtunity in theses regions. However, there are a number of factors which temper my longer term view of these opportunites, and their derivative considerations, to warrant shorter term tactical changes.

Among these considerations is the growing potential of sovereign debt crises acting as a catalyst for "Global Financial Meltdown, Part Two". The United States and the European region, in general, are seriously problematic. Several countries, in particular, are at the leading edge of a potential governmental solvency crisis. These are Greece, Spain, Italy, and England. S & P recently lowered the debt worthiness rating of the second largest economy in the world, Japan. Because of the growing deficit problem in our own country, and a Congress that may not be able too deal with it, even if the U.S. Congress were to be functional, it appears that the United States may not be too far behind with respect to a solvency crisis within the next five to ten years. This is but one of a number of signifcant factors which should prompt some additional strategic thinking away froma "full steam ahead", business as usual mentality.

As should be quite evident from our recent experiences of the 2007-2008 global financial meltdown, as people ruah for the exit, even assets which have strong underlying fundamental strength get painted with the same brush of value deterioration as panic sets in. Indeed, from a longer term perspective, these can be rare opportunities for the investor, assuming the emotional, pyschological, time, and financial abilities to withstand the ensuing trauma and economic dislocation.

In my opinion, a more prudent approach would be to err on the side of caution. After the financial market runups from March 2008, it appears to me unreasonable to expect, and improbable to achieve an immediate followup to this. The chances are that if we have really turned the corner with regard to a sustainable economic turnaround, there will be many years of compelling opportunties ahead. On the other hand, if reconsideration of the financial landscape leads one to believe in at least a reasonable prospect of financial meltdown, part two, it would be prudent to consider a more defensive portfolio allocation.

These are soome of hazards of the economic and investment landscape at the present time. It does nott consider unaccounted for contingencies, which seem to always arise in some form or other. It presents a set of risks, as well as a set of opportunities. In my opinion, the best way in which to deal with this environment is to maintain a vigilent and critical view of ongoing events. It is necessary to be responsive, while not over-reactive, as to how they may impact our longer term strategic outlook. It is important to keep in mind is that no one has a perfect crystal ball, and that because of institutionalized imprudence, there really is no safe harbor left. The most effective management will how well potential risks and rewards can be balanced in the midst of growing global economic dislocations and the financial restructuring resulting thereof.